Yuan hits record high against dollar

Yuan hit a fresh high as the People's Bank of China unleashed a new leg of yuan appreciation.

The yuan hit a fresh trading high against the dollar on Wednesday as the People8217;s Bank of China unleashed a new leg of yuan appreciation to help fight imported inflation,traders said.

The central bank has engineered a series of record highs for the Chinese currency since the start of this year as a weaker dollar helped send global commodity prices surging,boosting imported inflation for China,the world8217;s fastest growing market for staple goods.

Over the past eight trading days,the PBOC has allowed the yuan8217;s mid-point,or its reference rate from which dollar/yuan can rise or fall 0.5 per cent in a given day,to hit record highs nearly every day except for a slight pullback on Tuesday.

If the yuan rises too slowly,lagging conditions in the global market,China8217;s economy may not be cushioned in time from the effects of rising prices,traders said,noting that it was possible that policy makers had reached a common understanding on the necessity for quicker appreciation.

8220;A consensus appears to have been built up among policy makers in China to use the currency as part of its weapons to fight inflation,8221; said a trader at a European bank in Shanghai.

8220;A daily yuan rise of only a few dozen pips may still be too slow to help China before conditions actually change,for instance,if the U.S. dollar suddenly rebounds on the back of its economic recovery.8221;

PACE OF APPRECIATION

Spot yuan was trading at 6.5358 against the dollar at midday,up from Tuesday8217;s close of 6.5403.

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The currency hit an all-time high of 6.5348 in early trade,toppling the previous record of 6.5350 hit last Friday and having appreciated 4.45 per cent since it was depegged in June 2010,and 0.84 per cent so far this year.

Before trading began,the PBOC fixed the yuan8217;s mid-point at a record high of 6.5369,up from Tuesday8217;s 6.5440. The fixing is used by the PBOC to express the government8217;s intentions for the currency.

Traders said it may be more to China8217;s benefit to let the yuan appreciate faster to take advantage of the higher value of the currency to fight inflation while the PBOC could still pull back the currency quickly if market conditions change.

China has along stressed gradualism in reforming its foreign exchange regime,a euphemism for its reluctance to let the yuan rise faster.

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It is mainly worried about the impact a rapidly appreciating currency would have on its labour-intensive export sector and employment.

But now traders said the prospect for the yuan to appreciate remains intact in the medium term,with the benchmark Reuters Jefferies CRB index ,which covers 19 mostly U.S.-traded commodities,having leapt 44 per cent since last June.

Offshore,one-year non-deliverable forwards were bid at 6.3840 in late morning trade,unchanged from Tuesday8217;s close,with their implied yuan appreciation in a year8217;s time at 2.39 per cent.