Markets

Yuan at new peak against dollar

By Judy Chen (China Daily)
Updated: 2010-09-15 09:13

An employee counts US dollars at Industrial and Commercial Bank of China Ltd's Huaibei branch in Anhui province. Wu He / For CHina Daily

SHANGHAI - The yuan surged to the strongest level since 1993 on speculation the government will allow faster appreciation to head off US trade sanctions as China's economy improves.

The central bank fixed the reference rate at 6.7378 yuan per dollar, the highest level since a peg against the dollar was scrapped in July 2005, before the US House Ways and Means Committee discusses China's currency policy on Sept 15 and 16. Premier Wen Jiabao said on Monday at a World Economic Forum meeting in Tianjin that the economy is in "good shape."

"China doesn't want to see the relationship with the United States get hurt because of the currency issue," said Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch. "There will be more space for yuan appreciation also because signs show the economy will have a soft landing."

The currency gained 0.3 percent to 6.7446 yuan per dollar in morning trade on Tuesday in Shanghai, after climbing 0.5 percent in the last three days, according to the China Foreign Exchange Trade System. It touched 6.7470 yuan, the strongest level since the central bank unified official and market exchange rates at the end of 1993.

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"China's economy is now in good shape, featuring fast growth, gradual structural improvement, rising employment and basic price stability," Wen said. China's government in the past week reported pickups in industrial output and retail sales for August, as well as a third straight monthly trade surplus of more than $20 billion. The US Commerce Department on Monday imposed import duties of as much as 99 percent on Chinese-made steel pipes following a complaint from US Steel Corp.

China, which had a $227 billion trade surplus with the US in 2009, has been the subject of more complaints filed over unfair trade than any other nation, according to data compiled by the World Bank.

Twelve-month non-deliverable forwards rose 0.15 percent to 6.6483 yuan per dollar, reflecting bets the currency will strengthen 1.5 percent, according to data compiled by Bloomberg. Lu said the yuan will rise to 6.6 yuan by the end of 2010.

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