RMB trades as high as 6.8110 against US dollar

13:53, June 21, 2010      

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China's yuan bolted to a 21-month high on Monday, suggesting authorities are unshackling the currency from its de facto 23-month-old peg to the U.S. dollar.

The yuan rose as high as 6.8110 per dollar in trading at the Shanghai market Monday, up 0.2 percent from its close on Friday of 6.8262, the highest level since September 2008.

It was also the biggest intraday rise since October 2008, further evidence that the central bank was allowing the currency some room to move more freely.

Asian currencies and stocks rose and U.S. Treasuries fell on expectations that China's promise to revalue its currency would ease political tensions with the West and encourage investors to snap up riskier assets.

China's decision to keep the currency pegged to the U.S. dollar since the middle of 2008 has been a lightning rod for criticism that Beijing has been gaining an unfair trade advantage.

It's announcement at the weekend that it would give the currency greater flexibility was welcomed globally, including by the United States, albeit with some caution as policymakers waited to see what the words would mean in practice.

The central bank sets a daily reference point, also called medium rate, each day for yuan trade. The currency is allowed to move 0.5 percent either side of the given point.

"In the short term, the PBOC needs to let the yuan rise to appease the United States and rising pressures there," The Reuters quoted Wang Haoyu, economist with First Capital Securities in Shenzhen, as saying on Monday.

"But maybe they didn't move the mid-point to send the message that, 'Yes we will move, but the move will be slow.'"

Many economists see the currency strengthening further in coming days, albeit at a very modest pace, The Reuters reported.

"It's a multi-month trade," said Endre Pedersen, a fund manager at MFC Global Investment Management in Hong Hong.

Assets leveraged to global growth, from commodities to stocks and Asian currencies, all rose on hopes that China's surprise pledge of yuan flexibility would lessen the risk of a trade war between the world's biggest and third-largest economies.

Still, investors welcomed any sign that Beijing was ready to break a 23-month-old peg to the dollar.
As well as a nod to trade tensions, a rising yuan would give China more purchasing power to buy foreign goods, which would be positive for world trade, especially for commodity exporters such as Australia, Brazil, Canada and New Zealand, The Reuters reported Monday.

U.S. S&P 500 stock futures rose 1.3 percent and Japan's Nikkei 225 rallied more than 2 percent.

Economists also hope a higher yuan could help temper inflation in China by pushing down import prices, which in turn could mean Beijing would have less need to tighten monetary policy aggressively, including not in any rush to raise the interest rates.

By People's Daily Online / Agencies


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