China's yuan hits record high

Traders say govt is guiding yuan to achieve pre-determined yearly appreciation target

China's yuan hit a record high on Monday in light trading, as traders say authorities are guiding the yuan stronger in the final days of the year to achieve a pre-determined yearly appreciation target. Spot yuan changed hands at 6.0641 a dollar at midday, 0.07 per cent stronger than Friday's close, after touching an all-time high of 6.0637 earlier in the morning.

The gains came after the central bank set its daily midpoint at 6.0647 per dollar, the strongest fixing ever and 0.04 per cent firmer than Friday's fix. The People's Bank of China (PBOC) often guides the yuan stronger in the closing days of the year. Market watchers say this enables the government to record a strong full-year appreciation figure, helping to rebut criticism from trading partners who believe China keeps its currency weak to benefit local exporters.

The yuan's appreciation also reflects current supply and demand pressures. The currency's consistent appreciation this year, as well as rising yuan interest rates, have attracted speculators to the Chinese currency. Traders say client demand for dollars has been weak in recent days.

“There are a lot of short (dollar) positions,” said a trader at a major state-owned bank in Beijing.

“I expect this round of appreciation will end at around 6.06. After New Year's things will stabilise,” he said.

The yuan looks set for a gain of 2.7 per cent this year.

Beyond year-end factors, the euro hit a two-year high against the dollar on Monday. The PBOC often fixes the yuan stronger when the euro and other non-dollar currencies rise. But the stronger euro came as the Japanese yen hit a five-year low against the dollar.