Yuan closes at record high despite moves to curb speculation

Business & Markets 2013
Written by Reuters
Tuesday, 07 May 2013 19:58
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SHANGHAI (May 7): The yuan set a fresh record high close against the
dollar on Tuesday, despite regulators moves to curb speculation, with
buying fueled by a series of signals that the authorities plan to further
liberalise the tightly controlled currency.
The central bank set the midpoint at 6.2083 per dollar on Tuesday
morning, just one pip short of the all-time record high fix of 6.2082 set
on May 2, but this time the spot market took greater advantage of the
new room to close stronger than ever before.
The yuan ended the day at 6.1541 to the dollar, the highest close since
Beijing created the domestic currency market in 1994, extending the
string of records set this year.
Trading was heavy with nearly $20 billion transacted.
Authorities issued regulations on Monday limiting banks' long yuan positions as part of a campaign to crack down on hot
money inflows, which saw both onshore and offshore market swoon in intra-day trade on Monday.
But that only held back yuan buyers briefly, and by the afternoon session on Tuesday the yuan was rising again.
Traders did not see the tightening moves having a lasting effect, given the way regulators have been talking about the
potential for more currency liberalisation.
On Monday, China's cabinet called for the drafting of detailed plans to help achieve full convertibility of the yuan. The same
day, a central bank official told Reuters that the government is preparing to let individuals and small companies begin settling
trade in yuan by the end of the year.
Last month, Deputy PBOC governor Yi Gang said at a forum in Washington in April that conditions are now appropriate to
further open China's capital account and widen the yuan trading band, currently limited to one percent either side of the
mid-point.
But the pro-reform rhetoric has been accompanied by signs of increasing intervention in daily market operations, raising
questions over how quickly Beijing is ready to match talk with action.
Some analysts reckon letting the market find an equilibrium level for the yuan too quickly would be fraught with risk, and
doubted whether the authorities would implement measures any time soon.
"The kind of appreciation to bring the CNY to the point where risks are truly two-way is likely to be large enough to inflict
serious damage to the real economy," wrote Louis Kuijs and Tiffany Qiu of RBS in a research note to clients.