The yuan traded close to a 17-year high today after the US made renewed calls for China to let its currency rise ahead of President Hu Jintao’s visit to Washington next week.
Treasury Secretary Timothy F Geithner said yesterday China needs to strengthen the “substantially undervalued” yuan as it puts other countries at a competitive disadvantage. Hu is due to meet with President Barack Obama on January 19 and currency policy remains a major point of contention between the two governments. The People’s Bank of China set the yuan’s daily fixing at 6.5997 per dollar, 0.2 per cent stronger than yesterday and the highest level since at least July 2005.
“It’s interesting that China decided to strengthen its currency despite overt pressure from Geithner yesterday,” said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong. “Apparently, China decided that it’s very important Hu has the arguments to fend off Congressional critics of its policies. We expect further appreciation in the coming days.”
The yuan hit a high of 6.5931 per dollar, near 6.5897 reached on December 31, the strongest level since 1993. The rate slipped 0.01 per cent at today’s close of 4.30 pm compared to yesterday’s 6.6038, according to the China Foreign Exchange Trade System in Shanghai.
Twelve-month non-deliverable forwards rose for the fourth day, by 0.03 per cent to 6.4377, reflecting bets the currency will gain 2.4 per cent in a year.
“We think that China will have to move on in its tightening cycle,” said Andreas Koenig, a senior currency fund manager in Dublin at Pioneer Investments, which manages about ¤185 billion ($243 billion).
Policy makers on December 25 lifted the benchmark lending and deposit rates by 25 basis points. China’s consumer prices climbed 5.1 per cent from a year earlier in November, the fastest pace since August 2008.