Yuan firms on parity rate rise
By Feng Jianmin |
December 9, 2011, Friday
|
Print Edition
Print Edition
CHINA'S currency strengthened for the first time in four days during market trading yesterday after the central bank raised the yuan's central parity rate to the strongest this week.
Economists said the recent weakening was due to strong demand for the US dollar but was not an indication of depreciation in the long run.
They predicted that the yuan will continue a gradual appreciation in 2012 of between 2 and 3 percent along with the stable growth of the country's economy.
The People's Bank of China yesterday raised the daily fixing rate 0.04 percent to 6.3319 per dollar, the strongest since last Friday.
The yuan touched the lower trading limit for the seventh straight day at 6.3636 against the dollar in morning trading, before rising to 6.3619 when the market closed, 0.04 percent stronger than Wednesday's close.
The yuan can trade within 0.5 percent either side of the central bank's daily fixing rate.
"The stronger fixing rate lifted market confidence. It is a signal that the central bank wants a stable yuan to affirm its goal to internationalize the currency," said Li Wei, an economist with Standard Chartered Bank. "That meets with the country's interests in the long run."
Economists cite the recent weakness of the yuan to stronger demand for the dollar with risk aversion picking up on concerns over the financial woes in Europe, slow recovery in the United States and uncertainties among emerging markets.
"Constant tests of the lower limit during daily trading indicates great demand for the US dollar, which has been strong recently," said Lu Zhengwei, a chief economist with the Industrial Bank. "It is quite natural for investors to dump yuan assets at this time."
The yuan has risen more than 30 percent against the US dollar since China released the peg between the two currencies in 2005.
But the trend has reversed since September as money started to leave China, and the yuan began to weaken against the dollar in the domestic market. The central parity rate has lost around 0.25 percent since marking a record high of 6.3165 against the dollar on November 4.
Chinese banks' yuan funds stemming from foreign exchanges fell in October for the first time in four years on an outflow of foreign capital.
"Exporters and importers have dramatically cut their demand for the yuan, causing its weakness," Standard Chartered Bank's economists Stephen Green, Robert Minikin and Li Wei, wrote in a report.
Economists said the recent weakening was due to strong demand for the US dollar but was not an indication of depreciation in the long run.
They predicted that the yuan will continue a gradual appreciation in 2012 of between 2 and 3 percent along with the stable growth of the country's economy.
The People's Bank of China yesterday raised the daily fixing rate 0.04 percent to 6.3319 per dollar, the strongest since last Friday.
The yuan touched the lower trading limit for the seventh straight day at 6.3636 against the dollar in morning trading, before rising to 6.3619 when the market closed, 0.04 percent stronger than Wednesday's close.
The yuan can trade within 0.5 percent either side of the central bank's daily fixing rate.
"The stronger fixing rate lifted market confidence. It is a signal that the central bank wants a stable yuan to affirm its goal to internationalize the currency," said Li Wei, an economist with Standard Chartered Bank. "That meets with the country's interests in the long run."
Economists cite the recent weakness of the yuan to stronger demand for the dollar with risk aversion picking up on concerns over the financial woes in Europe, slow recovery in the United States and uncertainties among emerging markets.
"Constant tests of the lower limit during daily trading indicates great demand for the US dollar, which has been strong recently," said Lu Zhengwei, a chief economist with the Industrial Bank. "It is quite natural for investors to dump yuan assets at this time."
The yuan has risen more than 30 percent against the US dollar since China released the peg between the two currencies in 2005.
But the trend has reversed since September as money started to leave China, and the yuan began to weaken against the dollar in the domestic market. The central parity rate has lost around 0.25 percent since marking a record high of 6.3165 against the dollar on November 4.
Chinese banks' yuan funds stemming from foreign exchanges fell in October for the first time in four years on an outflow of foreign capital.
"Exporters and importers have dramatically cut their demand for the yuan, causing its weakness," Standard Chartered Bank's economists Stephen Green, Robert Minikin and Li Wei, wrote in a report.
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