The Chinese central bank guided the yuan to break above the 6.86 level against the dollar on Monday for the first time since its July 2005 revaluation, in response to the US currency's weakness on global markets.
The yuan also rose slightly in offshore non-deliverable forwards, but implied 12-month yuan appreciation against the dollar remained in the middle of the 6-7 percent range that has been established in the last few weeks. "The dollar is unexpectedly weak globally and the (domestic) market believes that is the reason why the central bank set another post-revaluation high mid-point today," said a dealer at a major Chinese state-owned bank in Beijing.
"By allowing the yuan to rise at a relatively faster pace in recent weeks, the central bank may now engineer a pause of yuan appreciation at any time," he said. "Any dollar rebound on global markets would likely serve as a trigger." Before trade began, the People's Bank of China set a post-revaluation high mid-point against the dollar of 6.8591, up from Friday's 6.8610.
That helped push spot yuan as high as 6.8540 in late trade on Monday, exceeding the previous post-revaluation traded peak of 6.8608 hit on Friday, when the yuan closed at 6.8622. The Chinese currency finished Monday at 6.8543. The yuan rose 2.30 percent against the dollar in the second quarter of this year, its third biggest quarterly rise since the revaluation, as Beijing appears committed to using the yuan's exchange rate to fight inflation.
Offshore, one-year dollar/yuan NDFs fell to 6.4410 in late trade from Friday's close of 6.4475. Their latest level implied yuan appreciation of 6.49 percent against the dollar in the next 12 months from Monday's spot mid-point, against 6.41 percent implied at Friday's close.