SHANGHAI, Sept 19: The Chinese yuan crawled higher on Tuesday morning, shrugging off a weaker central bank midpoint on strong corporate demand and a weakening of the dollar in early Asian trade.
Spot yuan changed hands at 6.3148 at midday on Wednesday, erasing two days of losses and pushing the yuan near the four-month high where it closed on Friday. It closed at 6.3189 on Tuesday.
‘The market is being driven mainly by order flow today. Customers are demanding yuan,’ said a trader at a major state-owned bank in Beijing.
The dollar’s movements in global markets also played a role. The dollar index strengthened overnight on Tuesday, prompting the central bank to set its midpoint 39 pips weaker at 6.3392 per dollar.
But the dollar gave back a part of those gains in early Asian trade, pushing the yuan higher.
The yuan has strengthened steadily since closing at a 2012 low of 6.3885 on July 25, tracking the dollar’s fall against the euro and other currencies.
But traders say significant further appreciation is unlikely this year, now that the market has digested the impact of the Federal Reserve’s latest round of quantitative easing (QE3). Most see a floor at 6.30.
An article in People’s Daily, the official newspaper of the Chinese Communist Party, noted on Wednesday that QE3 – along with steps to address euro crisis – had weakened the dollar in recent weeks, but cautioned that China should focus on its own interests and not allow the yuan to rise too quickly.
Notably, while the yuan gained against the dollar in August, the dollar’s weakness caused the yuan to fall against a broader basket of currencies. That’s because despite greater flexibility this year, the yuan’s link to the dollar remains tight.
The yuan’s real effective exchange rate (REER) fell 0.3 percent in August, according to data from the Bank of International Settlements.
REER reflects the yuan’s value against a trade-weighted basket of currencies and also corrects for changes in relative prices.
(agencies)
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