China’s yuan jumped to a record high against the dollar on Monday lifting some Asian currencies in its wake after the central bank relaxed its grip on the currency following strong trade data, suggesting a noticeable shift in policy.
The People’s Bank of China appears to have flagged a new round of appreciation for its tightly-managed currency at the year-end after it aggressively fixed the daily midpoint at a record high for a second consecutive day.
The yuan, also known as the renminbi, is allowed to trade on the mainland within a range of 1% on each side of the fixing which has repeatedly hit fresh highs in past weeks.
Underlining market optimism about the upward trend of the Chinese currency, the spot market has also become disconnected to the daily fixing, consistently trading at the stronger end of the range.
The continued gains in the yuan has confounded bank models and triggered a washout of long dollar bets in the spot market.
“Authorities appear to be comfortable with the yuan’s rise and we expect a moderate pace of gains in the near term,” said Sacha Tihanyi, senior currency strategist at Scotia Bank in Hong Kong, who expects the yuan to rise to 6.07 per dollar by the end of March and to 6.01 by end 2014. “With stronger downside fixings on days like today, it is suggestive that policymakers may be allowing already the degree of flexibility that was hinted at in recent statements,” he said.
In opening trades on Monday, yuan barrelled to a record of 6.0715 per dollar before retreating, compared with 6.0817 at the previous close after People’s Bank of China set the daily fixing at 6.1130 — its highest since a 2005 revaluation.