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Reversal of dollar trend as yuan hits record high

By Louise Ho   (Shanghai Daily)

10:34, December 18, 2011

The yuan rose to a record high against the US dollar yesterday, a reversal from a declining trend this month, which traders said could be the result of the central bank's intervention.

The People's Bank of China fixed the yuan's mid-point at 6.3352 per dollar yesterday, up from Thursday's 6.3421.

The Chinese currency rose to the highest level of 6.3294 against the dollar during the trading, then dropped to end at 6.3484, which was still stronger than Thursday's close of 6.3735.

The yuan is allowed to trade 0.5 percent either side of the central bank's fixing.

Traders speculated that the central bank sold large amounts of dollars via state banks, pushing the Chinese currency to rise.

Liu Dongliang, senior analyst at China Merchants Bank, said: "A possible intervention by the central bank was a signal to the market not to short sell the yuan.

"The yuan has not entered on to a devaluation path. The appreciation trend of yuan will continue well into the first half of next year."

Recent weakening export data and a sluggish property market have cast doubts about growth next year, which put pressure on the yuan.

Since late September, the central bank has been setting the daily dollar to yuan mid-point higher to prevent the yuan's depreciation. However, a strong dollar in the global markets and a lack of dollars in the onshore market have pushed the yuan to the lower end of its trading band for 12 days in December.

This has led to market speculation that the yuan has started to depreciate since it has risen 30 percent since its revaluation in 2005.

After the intervention, worries over the yuan's depreciation have receded and the market is flush with dollars, a dealer at a bank in Shanghai was quoted as saying by Reuters.

Traders said the yuan is likely to stabilize between 6.30 to 6.40 to the dollar for the rest of this year.

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