Yuan climbs past seven per dollar as China’s central bank caves in to bulls

The yuan climbed past the psychological milestone of 7 yuan per US dollar for the first time since September last year, on bets China’s central bank would allow gradual currency appreciation to boost market confidence.The offshore yuan yesterday gained as much as 0.2 percent to 6.9964 yuan per US dollar. The move came after the People’s Bank of China strengthened its daily reference rate to the strongest level since September last year.The central bank on Wednesday promised to ensure adequate money supply to support financing, economic growth and inflation targets. Earlier in the week, it had opted to keep its key short-term lending rates unchanged.The yuan is headed for its best year in half a decade against the US dollar, thanks to a slump in the US currency, inflows chasing China’s stock-market rebound and easing geopolitical tensions.Beijing has been guiding the yuan stronger at a carefully orchestrated pace with its fixing in the past few months as it seeks to allow currency appreciation without triggering foreign-exchange volatility. “The yuan has been bolstered by weakness in the dollar and seasonal foreign-exchange conversion by exporters,” Golden Credit Rating International Co (東方金誠國際信評) chief macro analyst Wang Qing (王青) said. “A sustained yuan gain will be helpful in increasing the appeal of China’s capital markets to foreign investors.”In onshore trading, the Chinese currency yesterday gained 0.1 percent to 7.0067 yuan per US dollar.Flows were tilted toward US dollar selling, with major Chinese banks seen buying the greenback heavily at about 7.006, according to traders asking not to be identified as they were not authorized to speak publicly.Offshore liquidity was thin due to holiday effects, the traders said.Hong Kong markets were shut yesterday and would be closed today for the Christmas holidays.Despite its rally versus the US dollar, many analysts say the yuan is still too cheap on a trade-weighted basis and considering China’s entrenched deflation.Goldman Sachs Group Inc said the currency was 25 percent undervalued relative to economic fundamentals.The yuan would likely stay strong in the range of 6.95 to 7 yuan per US dollar in the first half of next year, Australia & New Zealand Banking Group senior strategist Xing Zhaopeng (邢兆鵬) said.