Money
Yuan rises past key level VS dollar
By Fion Li and Judy Chen (China Daily)
Updated: 2011-05-03 09:43
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The gain may dampen US criticism of the nation's exchange-rate policy
HONG KONG / SHANGHAI - The yuan strengthened beyond 6.5 a dollar for the first time since 1993, supported by speculation the central bank will allow appreciation to help tame the fastest inflation in more than two years.
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Traders sell fruits at a wholesale market in Xi'an, Shaanxi province. Consumer prices in Asia's biggest economy rose 5.4 percent from a year earlier in March, exceeding the government's 4 percent goal for this year.?[Photo/Agencies] |
The currency's seventh weekly gain, its longest winning streak since July 2008, may dampen US criticism of China's exchange-rate policy before Vice-Premier Wang Qishan heads to Washington next month for talks with Treasury Secretary Tim Geithner.
Consumer prices in Asia's biggest economy rose 5.4 percent from a year earlier in March, exceeding the government's 4 percent goal for this year.
"Inflation is still higher than what the government would like to see," said David Cohen, a Singapore-based economist at Action Economics, who previously worked for the Federal Reserve. "The central bank is tolerating faster currency appreciation to contain import costs."
The People's Bank of China set the yuan's reference rate at 6.4990 a dollar, the strongest level since July 2005. The currency is allowed to trade up to 0.5 percent on either side of the official rate.
The "unusually fast pace" of yuan gains confirms that the yuan is being used to fight inflation, Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, wrote in a note to clients Friday. He said there may be a "sharp gain" once 6.50 is breached and recommends buying the yuan against the greenback using non-deliverable forwards.
The dollar weakened this month against all 16 major currencies monitored by Bloomberg as the Fed maintained a near-zero benchmark interest rate and boosted the supply of the US currency by buying Treasuries, a policy known as quantitative easing that is set to end in June.
A halt to the US central bank's Treasury purchases will alleviate pressure for yuan gains, Huang Zhilong, a researcher with the China Center for International Economic Exchanges, wrote in a Chinese-language newspaper on Friday. The center is affiliated with the National Development and Reform Commission, China's top economic planning agency.
Chinese officials told Senate Majority Leader Harry Reid and nine other US senators who visited China this month that the yuan's "managed appreciation" will continue, according to an April 26 statement on Reid's website. The group met with leaders including Vice-President Xi Jinping and People's Bank of China Governor Zhou Xiaochuan.
New York Senator Chuck Schumer, who was on the trip, said last week the talks convinced him to push more forcefully for legislative action to accelerate yuan appreciation. Treasury Secretary Geithner and Secretary of State Hillary Clinton are due to meet with Chinese Vice-Premier Wang and State Councilor Dai Bingguo during the annual US-China Strategic and Economic Dialogue being held on May 9 and 10 in Washington, the US State Department said last week.
Bloomberg News
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