Yuan hits new high on dollar rebound

08:28, July 13, 2010      

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The yuan reached a new high Monday mainly on a recent dollar rebound against other currencies and June's stronger-than-expected trade data.

The People's Bank of China (PBC) set the yuan's central parity rate against the dollar at 6.7718 Monday, surpassing a peak of 6.7720 reached July 2.

The dollar has rebounded recently due to rising uncertainties seen in the euro zone, pushing the yuan to rise, as the weight of dollar remains predominant in the currency basket, said economist Chang Jian with Barclays Capital in Hong Kong.

The PBC announced in June a return to a managed float referenced to a basket of curren-cies that was started in July 2005 but suspended when the financial crisis hit.

The trade data for June released over the weekend also put pressure on yuan appreciation, said Yan Jin, a Shanghai-based economist with Standard Chartered Bank (China).

China's exports hit a record high of $137.4 billion in June, making the trade surplus exceed $20 billion, and continuing expansion for the third consecutive month.

The value of the yuan has increased by 557 base points as of Monday since the resumption of the exchange rate reform in June.

The yuan is likely to see small appreciation over the next one to two months, while slowing down its pace through the last quarter of the year, Yan said.

Export growth would decline in the fourth quarter when the impact of European debt crisis on China's exports would start to be felt, she explained. The yuan is estimated to reach 6.63 against the dollar by the end of this year, she said.

While appreciation rates fluctuate differently depending on the global economy, the yuan is expected to rise at a gradual and modest pace over the medium- to long-term, given a decline seen in the proportion of trade surplus over GDP, Chang said.

The proportion of China's current accounts surplus over GDP shrank to 6.1 percent in 2009 from 9.6 percent in 2008, and the ratio is likely to further drop this year, the State Administration of Foreign Exchange said Thursday.

Source: Global Times


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