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Yuan hits high end of central parity rate
Aggregated Source: Shanghai Daily: Business

THE yuan strengthened and hit the upper ceiling of the trading band against the US dollar yesterday on talk that more inflow of foreign capital will lift the Chinese currency.

The yuan firmed 0.05 percent to 6.1389 per dollar when the market closed in Shanghai yesterday, according to China Foreign Exchange Trade System prices.

The rate was 1 percent stronger than the People's Bank of China's central parity rate, compared with last Friday's. The yuan can trade within 1 percent on each side of the official fixing rate.

China may face "large scale" inflows of speculative funds in the next few years, which will drive asset prices higher and fuel consumer prices, Su Ming, deputy head of the Ministry of Finance's research institute for fiscal science, said in an article published in yesterday's People's Daily newspaper.

A Shanghai-based trader said clients were selling US dollar as they hedged on the yuan's appreciation, but he expected the future trend to be more murky and dependent on the direction of foreign exchange policies.

Economists predict the PBOC will widen the trading band between the two currencies to allow greater flexibility in the exchange rate by the third quarter of this year.

The yuan's rise also came despite a rebound in the US dollar on talk that the Federal Reserve may stop its quantitative easing measures by the year end.

The yuan hit 6.1307 on May 9, the strongest level since the government unified the official and market exchange rates at the end of 1993.

Last week, data showed the PBOC and commercial banks bought a net 294 billion yuan worth of foreign exchange in April - the fifth straight month of net purchases.

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Copyright Shanghai Daily: Business

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