Yuan hits record on weak US$
By Feng Jianmin |
July 28, 2011, Thursday
|
Print Edition
Print Edition
CHINA'S yuan rose to a fresh high yesterday on a weak US dollar as Democrats and Republicans continued to argue over competing plans to cut the US deficit, unsettling global financial markets and weighing on the greenback.
The central bank yesterday set the daily fixing 0.07 percent stronger at 6.4426 yuan per dollar, the highest level since July 2005.
During trade in Shanghai yesterday the local currency touched its strongest level since China unified official and market exchange rates at the end of 1993 when an intraday high of 6.4375 against the US dollar was reached. The yuan ended at 6.4433 against the greenback yesterday, marginally down from Tuesday's close of 6.4414, according to the China Foreign Exchange Trade System.
"A weaker US dollar is the main factor that lifted the valuation of the yuan recently," said Lu Zhengwei, chief economist of the Industrial Bank.
The Dollar Index, which tracks the greenback against the currencies of six trading partners, dropped 1 percent over the past two days. The US lawmakers have until August 2 to raise the country's US$14.3 trillion borrowing limit or risk missing a payment on its debt. Standard & Poor's on July 21 put the US's AAA debt rating under a three-month review for a possible downgrade, which may raise the nation's borrowing cost by 0.6 to 0.7 percent.
Lu said that a more valuable yuan was attractive to foreign investors and may improve China's market liquidity which was impaired by tight monetary policies. Yuan appreciation will not impact China's exports in general because of the yuan's depreciation against other currencies such as the euro and the pound.
"But companies that focus on exports to the US market will be harmed," Lu said. "The yuan will not rise much more than 5 percent this year under pressure to maintain export volumes."
Lu added that he expected China's central bank to hold off on another reserve requirement ratio increase, although it may raise interest rates again in August to curb inflation, which is widely expected to remain above 6 percent after rising to a three-year high of 6.4 percent in June.
Nouriel Roubini, chairman of New York-based Roubini Global Economics LLC, said on Tuesday that China should accelerate the pace of yuan appreciation. Faster gains would help China control inflation, give it some degree of monetary independence and increase purchasing power, he said.
The central bank yesterday set the daily fixing 0.07 percent stronger at 6.4426 yuan per dollar, the highest level since July 2005.
During trade in Shanghai yesterday the local currency touched its strongest level since China unified official and market exchange rates at the end of 1993 when an intraday high of 6.4375 against the US dollar was reached. The yuan ended at 6.4433 against the greenback yesterday, marginally down from Tuesday's close of 6.4414, according to the China Foreign Exchange Trade System.
"A weaker US dollar is the main factor that lifted the valuation of the yuan recently," said Lu Zhengwei, chief economist of the Industrial Bank.
The Dollar Index, which tracks the greenback against the currencies of six trading partners, dropped 1 percent over the past two days. The US lawmakers have until August 2 to raise the country's US$14.3 trillion borrowing limit or risk missing a payment on its debt. Standard & Poor's on July 21 put the US's AAA debt rating under a three-month review for a possible downgrade, which may raise the nation's borrowing cost by 0.6 to 0.7 percent.
Lu said that a more valuable yuan was attractive to foreign investors and may improve China's market liquidity which was impaired by tight monetary policies. Yuan appreciation will not impact China's exports in general because of the yuan's depreciation against other currencies such as the euro and the pound.
"But companies that focus on exports to the US market will be harmed," Lu said. "The yuan will not rise much more than 5 percent this year under pressure to maintain export volumes."
Lu added that he expected China's central bank to hold off on another reserve requirement ratio increase, although it may raise interest rates again in August to curb inflation, which is widely expected to remain above 6 percent after rising to a three-year high of 6.4 percent in June.
Nouriel Roubini, chairman of New York-based Roubini Global Economics LLC, said on Tuesday that China should accelerate the pace of yuan appreciation. Faster gains would help China control inflation, give it some degree of monetary independence and increase purchasing power, he said.
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