China'S yuan reached a new
high yesterday since its July revaluation, as other currencies gained following
weak US dollar sentiments and on market forces.
The People's Bank of China set the yuan's central parity rate, or daily
reference prices, against the dollar at 8.0116 yesterday - the highest since the
currency was scrapped from a peg to the greenback in July.
The rate indicates the market view of the currency since it is based on the
average weighted quotes from more than 10 commercial banks.
The yuan closed at 8.0073 against the greenback in the China Foreign Exchange
Trading System yesterday, up 0.12 percent.
"Market forces are the main driver for a strengthened yuan amid a selling
build-up on the greenback today (Wednesday)," said Zhu Heng, an Industrial and
Commercial Bank of China dealer. "The yuan grew stronger amid a weak US dollar
against other currencies in the international market."
It is natural to see a stronger yuan whose prices are now managed in a basket
of currencies that are firming against the US dollar, he said.
China dropped its decade-long peg to the greenback on July 21 and shifted to
a basket of currencies including euros, yen and the Korean won. The yuan
appreciated 2.1 percent immediately and has since gained 1.28 percent.
The US currency weakened against all 16 major currencies that Bloomberg
tracks. The greenback lost its luster as the possibility that the Federal
Reserve will continue to keep raising rates has eased.
Market forces may be another driver for the yuan, market observers said.
China's government has reiterated in recent months it will let
supply-and-demand forces play a key role in determining the yuan's value. The
yuan normally goes up on such talk.
The PBOC is likely contented to see a faster appreciation of the yuan since
it will spur more corporations to hedge their exposure and to adjust to the new
exchange rate, said Stephen Green, a senior economist at Standard Chartered
Bank.
"It would not be surprising if the yuan broke the 8.0 barrier next week or
even this week," he said in an emailed note. "This will be a big psychological
barrier for China, but a bit of a non-event for the markets" because the markets
have been expecting a stronger yuan and it was not a question of if but
when.