Related article ~ US, China: Economy meeting in May amid continued tensions over debt, exports and value of China's currency ...
May 5, 2011
PBOC fixing weaker for 3rd day but only marginally
* Yuan appreciation may quicken during U.S.-China talks
* China eyes SDR reforms to include BRICS currencies
* Yuan at 6.4956, up 5.08 pct since depegging
SHANGHAI, - The yuan edged lower against the dollar on Thursday as the People's Bank of China fixed its mid-point marginally weaker for the third straight day, giving the Chinese currency a pause after a slew of record highs.
Traders said the central bank may be preparing for a new leg of yuan appreciation during the U.S.-China Strategic and Economic Dialogue both as a goodwill gesture to the United States and as an extension of recent gains this year.
While the government paints a picture of resisting U.S. calls for yuan appreciation, it typically lets the currency strengthen during bilateral talks to give face to the United States and in recognition of the importance of ties between the world's two biggest economies.
The PBOC has guided the yuan to a slew of record highs this year, with a rise of 0.9 percent in April, accelerating from 0.4 percent in March, at a time when the dollar sank to three-year lows against a basket of currencies.
Policymakers in Beijing have made it clear they will deploy the currency as a weapon to fight inflation, which hit a 32-month high of 5.4 percent in March, partly boosted by surging global commodity prices.
As there are few signs of a reversal in the weak dollar and surging commodity prices, the PBOC may continue to let the yuan edge higher, possibly at a faster pace to rein in inflation.
"The PBOC appears to have engineered a break in yuan appreciation to pave the way for a relatively large rise for the currency during next week's talks," said a European bank dealer in Shanghai, adding appreciation could resume as soon as Friday.
SDR AMBITION
Spot yuan was trading at 6.4956 versus the dollar at midday, down from Wednesday's close of 6.4933. It has now appreciated 5.08 percent since it was depegged from the dollar in June 2010, and 1.44 percent since the start of this year.
Before trade began, the PBOC set the yuan's daily mid-point at 6.5025 against the dollar, slightly weaker than Wednesday's 6.5013. The central bank uses the mid-point to express the governments' intention for the yuan's movements.
China has all along stressed that it will keep the yuan's exchange rate relatively stable. In a quarterly monetary policy report this week, the PBOC reaffirmed the government's will.
Besides protecting its exports and other labour-intensive industries, the government also appears to believe that only a stable currency, whether or not it is fully convertible, can assume a role in the global reserve currency system.
The head of China's foreign exchange authority said in remarks published on Thursday that the International Monetary Fund (IMF) should consider including currencies of the BRICS countries and other emerging economies when it next reviews its Special Drawing Right (SDR) system by 2015. [ID:nL3E7G5008]
Calls by Chinese officials for inclusion of the yuan to the SDR are not new. In March 2009, PBOC governor Zhou Xiaochuan first sketched out China's long-term ambition to supplant the dollar with a super-sovereign currency akin to the IMF's SDR and implied that the yuan could be one of its constituents.
Meeting in the southern Chinese island of Hainan last month, leaders of the BRICS countries -- Brazil, Russia, India, China and South Africa -- called for a revamped global monetary system that relies less on the dollar. [ID:nL3EFE07J].
Traders, however, pointed out that those efforts will not have an immediate impact on the yuan's daily trading.
Offshore, one-year non-deliverable forwards (NDFs) were bid at 6.3340 at midday, up from 6.3290 at the previous close. Their implied yuan appreciation in a year's time fell to 2.66 percent from 2.74 percent.
http://www.reuters.com/article/2011/05/05/markets-china-yuan-midday-idUSL3E7G50BE20110505
