SHANGHAI: China's central bank set a record high midpoint for the dollar-yuan exchange rate on Friday, for the second consecutive day, with spot prices moving closer to testing the recently widened trading band.
Spot prices remain in the same range they have traded in all week, in spite of the higher daily fixing.
Spot yuan opened at 6.3055 per dollar, only 5 points stronger than Thursday's close, despite a midpoint of 6.2787, up 0.07 percent from the prior fix.
Traders priced the yuan at 6.3087 at one point, 0.41 percent away from the midpoint, the second-widest move the currency has travelled away from its daily fixing since the trading band was widened to 1.0 percent from 0.5 percent from April 16.
On that day, the renminbi moved 0.46 percent away from the fixing. It has yet to break through the old range limit of 0.5 percent.
The yuan's midpoint typically rises in response to overnight weakening in the dollar index, and the index was down 0.118 percent on Thursday night.
However, traders believe that the decision to set new record highs is not due to the dollar's intra-week performance.
Two traders at Chinese banks said the central bank's move was a political gesture prior to the opening of the annual US-China Strategic and Economic Dialogue next week.
A trader at a major European bank in Shanghai said that regulators were also pushing the midpoint up to reinforce confidence in the currency's upward trend.
"The PBOC has set the yuan's fixing at much higher levels than the currency's trading rates recently to curb expectations that the yuan might depreciate this year, given concerns over China's economic slowdown."
One year non-deliverable spot forwards (NDFs), which some consider an indicator of the yuan's future value, traded at 6.3495 near midday, implying a depreciation of 0.66 percent from the spot rate.
However, many market players believe that NDFs are no longer reliable as a predictive tool and should be viewed primarily as a tool for hedging or speculation.
Offshore yuan (CNH) continues to trade close to the onshore version, trading at 6.3045 at midday.