China's yuan made its biggest one-day gain against the dollar in more than 10 years in onshore markets on Friday, as traders speculated that state-owned banks had intervened on behalf of the central bank to raise the Chinese currency's value.
The dollar fell 0.6 percent on the day to hit 6.3171 yuan just before the market closed at 0830 GMT. That would not be an especially eye-catching move for other emerging market currencies but for the yuan, still tightly controlled by Beijing, it was the biggest daily gain since its one-off revaluation in July 2005. HSBC currency strategist Dominic Bunning in London, the biggest hub for yuan trading outside Asia, said the steps China was taking to liberalise the yuan, also called the renminbi, meant moves of this scale would become more common.
"We're going to have to be more prepared for seeing days when the renminbi does trade in this manner," he said. "Daily ranges are going to get bigger and the currency is going to move in a more volatile manner."
The People's Bank of China (PBOC) was suspected of intervening in trading to support the yuan in the offshore market on Thursday evening, pushing it up sharply, catching some traders by surprise and forcing them into stop-loss orders on Friday, traders said.
"We still saw some intervention by the state-owned banks today, plus a bout of stop-loss trades appearing when the CNH (offshore yuan) firmed to around 6.34 and then kept appreciating," said an offshore trader at an Asian bank in Hong Kong.
Some traders linked the support for the yuan to the IMF's forthcoming internal debate on whether to include the yuan in the Special Drawing Rights (SDR) basket.
"PBOC intervention today appeared to be stronger than usual," said a trader at a European bank in Shanghai.
"It appears the central bank may want the yuan to shows more strength ahead of the IMF's discussion on whether to include the yuan into the SDR basket."
The offshore yuan, which trades more freely than its onshore counterpart and can be bought and sold 24 hours a day, also gained in much higher than average volume, though not by as much. By 1210 GMT it was up 0.3 percent at 6.3295 yuan per dollar.
Adding to the yuan's strength, the PBOC set the official midpoint rate at 6.3495 per dollar prior to the onshore market's open - 0.16 percent firmer than the previous fix at 6.3596. The ruling Communist Party of China on Thursday night reiterated its goal of doubling GDP and incomes between 2010 and 2020. Also, Germany and China announced that they will cooperate to create new yuan-denominated trading platforms on Deutsche Bourse which would boost use of the currency globally. HBSC's Bunning also highlighted the fact that the Bank of Japan had refrained from expanding its stimulus programme at a policy meeting on Friday, which could dampen any perception of an Asian "currency war" of competitive devaluations.
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