The yuan slipped against the dollar on Monday, the first trading day after an interest rate hike by the Chinese central bank, but it has a good chance of hitting new post-revaluation highs in coming days, traders said.
Before trade began on Monday, the central bank set the yuan's mid-point at 7.5230, down from 7.5222 on Friday, in an apparent signal that it did not want the weekend's rate hike to be used by speculators as a cue to push the yuan up sharply.
But since the rate hike was in response to 10-year high inflation, traders expect the central bank to permit another leg up in the yuan soon. "I bet the yuan will go back to its uptrend soon, and it could quite possibly test new highs this week given the inflation situation," said a trader with a major US bank.
"The much-expected rate cut by the Fed could also be a big help." The yuan ended at 7.5227 on Monday, weaker than Friday's close of 7.5160 and way off its post-revaluation high of 7.5101, set last Thursday. But with the US Federal Reserve widely expected to cut its benchmark interest rate by at least 0.25 percentage point after its meeting this Tuesday, Asian currencies including the yuan are set to rise, traders said.
In fact, the Chinese central bank may merely have engineered Monday's fall of the yuan to create more room for yuan appreciation after the Fed's rate cut, traders believe.