Tags: Yuan | High | US | Pressure

Yuan Hits Post-Revaluation High as US Pressure Mounts

Monday, 13 Sep 2010 07:38 AM

The yuan hit a post-revaluation high against the dollar on Monday, with the United States stepping up pressure on China to let the yuan rise as Treasury Secretary Timothy Geithner said he was not satisfied with the progress of yuan reform.

The People's Bank of China fixed the yuan's daily mid-point against the dollar at its highest level since the yuan's landmark revaluation in July 2005 but strong corporate buying of dollars made the yuan trade far blow the fixing.

"Most of us believe the PBOC made a goodwill gesture amid U.S. pressure," said a dealer at European bank in Shanghai. "But with the yuan falling prey to political maneuvers, how the yuan will move is completely out of the market's control."

Bank dealers reported heavy dollar buying demand from their clients as the yuan jumped under the guidance of the central bank's mid-point, or its reference rate, from which the yuan can rise or fall 0.5 percent each day.

"People are uncertain of the yuan's upside despite the strong fixing, so some companies made the yuan's jump an opportunity to buy dollars in case the mid-point falls back later on," said a dealer at a Chinese commercial bank in Shenzhen.

Before the yuan's latest rally this month, the PBOC used a slew of weak mid-points to guide the currency 0.65 percent lower from Aug. 9 to Sept. 1 in a move to encourage two-way trading.

U.S. Treasury Secretary Timothy Geithner said in remarks published in the Wall Street Journal on Monday that China had made "very, very little" progress on letting the exchange rate of the yuan reflect market forces.

In an interview conducted on Friday, Geithner was asked if he was satisfied with China's progress on the yuan. He replied: "Of course not."

Geithner is due to testify before the U.S. House of Representatives Ways and Means Committee on Thursday to present the Obama administration's latest view of what the United States should do to press China to reform its exchange rate practices.

The PBOC set the mid-point at 6.7509 on Monday, up from Friday's 6.7625, guiding spot yuan to trade at 6.7616 at midday on Monday after touching a post-revaluation high of 6.7568, up from Friday's close of 6.7692.

The yuan is now up 0.96 percent from June 19, when the PBOC announced the abolition of a two-year peg to the dollar. At the post-revaluation high, it rose 1.03 percent since the depegging.

The yuan was little changed for more than a decade before the 2005 revaluation in which China shifted to "a managed floating exchange rate based on market supply and demand with reference to a basket of currencies", to replace a single exchange rate system solely decided by the central bank.

The reform was interrupted for nearly two years since July 2008 until mid-June this year during which China re-pegged the yuan to the dollar to help fight the global financial crisis.

Offshore dollar/yuan forwards (NDFs) fell sharply on Monday in response to the PBOC's high mid-point, but traders said the market was cautious not to go as far as to imply that China would change its yuan policy in the near term.

"The strong fixing had been expected given the strong data and selling in NDFs is calming down quickly," said an NDF trader at an Australian bank in Hong Kong.

Data on Saturday showed that Chinese factories ramped up production in August and money growth easily topped expectations.

Benchmark one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.6425 at midday on Monday, down from 6.6508 at Friday's close.

But their implied 12-month yuan appreciation fell to 1.63 percent from 1.68 percent due to Monday's sharply stronger spot yuan mid-point.

NDFs have become conservative in implying yuan appreciation since early August as the PBOC's new mode of two-way trading makes speculation on yuan appreciation increasingly difficult.

© 2017 Thomson/Reuters. All rights reserved.

   
1Like our page
2Share
Economy
The yuan hit a post-revaluation high against the dollar on Monday, with the United States stepping up pressure on China to let the yuan rise as Treasury Secretary Timothy Geithner said he was not satisfied with the progress of yuan reform. The People's Bank of China fixed...
Yuan,High,US,Pressure
642
2010-38-13
Monday, 13 Sep 2010 07:38 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved