Yuan hits fresh high vs dollar on PBOC guidance

* Yuan hits intraday high of 6.6130 after record high fixing

* Dealers expect yuan may rise 1-2 percent in Q1 2011

* Senior c.banker says gradual yuan rise good for economy

* Thin holiday trade makes NDFs move in a small range

By Chen Yixin and Jason Subler

SHANGHAI, Dec 30 (BestGrowthStock) – The yuan hit a record high
against the dollar on Thursday after the People’s
Bank of China set a higher mid-point, sparking expectation of
more yuan appreciation in the first quarter of 2011.

Spot yuan hit an intraday high of 6.6106
by midday, the highest level since its revaluation and
forex reforms in July 2005. That was up 0.2 percent from
Wednesday’s close.
The PBOC set the day’s mid-point
against the dollar, from which the yuan can rise or fall 0.5
percent in a given day, at a record high of 6.6229 ,
slightly strong er than Wednesday’s
6.6247.
A number of dealers said they expected the yuan
might rise 1-2 percent in the first quarter of 2011 as China
needs to fight imported inflation and will face heightened
political pressure for it to strengthen.

“The domestic economic situation of this year may carry on
into the first quarter of next year,” said a dealer at an
Asian bank in Shanghai. “So we expect the yuan may rise a
little more at that time.”

Dealers see the currency’s gains quickening ahead of the
visit by Chinese President Hu Jintao to the United States in
mid-January. As for all of 2011, the yuan’s appreciation will
still be measured and intermittent, traders say.

Sheng Songcheng, head of the statistics department at the
PBOC, said in comments published on Thursday that a gradual
and modest appreciation of the yuan would be good for China’s
economy and has not hurt Chinese exporters. [ID:nTOE6BT004]

But Liu Dongliang, senior currency strategist at China
Merchants Bank in Shenzhen, said that China’s inflation for
now was mainly affected by its own food prices.

With the international influence not so obvious, the
impact of yuan appreciation on curbing domestic inflation
would be limited in the short-term, Liu said.

The central bank appeared reluctant to let the yuan rise
too fast, amid the threat of speculative capital inflows
seeking returns on higher interest rates and expectations of a
further yuan rise.

Offshore, one-year non-deliverable dollar/yuan forwards
were bid at 6.4630 at midday, down
slightly from Wednesday’s close of 6.4730. The
implied yuan appreciation in a year’s time edged higher to
2.47 percent from 2.32 percent.

Traders said offshore forwards had lagged in
response to the latest signs of yuan appreciation, due mainly
to thin holiday trading, but they might in coming weeks
increasingly imply greater appreciation over the next year.

Yuan hits fresh high vs dollar on PBOC guidance