By Feng Jianmin | 2012-11-27 | NEWSPAPER EDITION
CHINA'S yuan climbed toward a 19-year high yesterday, hitting its daily trading cap for the 18th time this month, on expectation global investors will boost holdings of local assets as the world's second-largest economy recovers from a seven-quarter slowdown.
The People's Bank of China set the daily reference rate stronger by 0.03 percent to 6.28840 per dollar yesterday and the currency closed at 6.2255 per dollar on the spot trading market, nearly breaching a 19-year record of 6.2252 on November 14.
The yuan has tested the 1 percent upper limit of its trading band for the 18th time in the past 20 trading days, according to the China Foreign Exchange Trade System.
"The yuan has resumed appreciation in the fourth quarter because China's economy is recovering and exports have rebounded," said Ding Zhijie, a professor at the University of International Business and Economics in Beijing. "Banks are less willing to buy US dollars and this drives the yuan to the upper ceiling of its trading band."
China's manufacturing activities may have expanded in November for the first time after 13 months of contraction, the HSBC's Flash China Purchasing Managers' Index showed last Thursday, the earliest indicator of the nation's monthly manufacturing activities.
The yuan has strengthened 1.9 percent since September 3 on the spot market, more than offsetting the 0.86 percent depreciation during the first eight months, China Foreign Exchange Trade System data showed.
The central parity rate set by the central bank was up 0.84 percent in the past three months, a sign taken by economists that the bank is more tolerant about the recent appreciation trend.
A Shanghai-based trader said there was not much liquidity on the market, and the exchange rate would be stable unless the central bank significant raises the central parity rate or intervenes in other ways.
The exchange rate is tending toward equilibrium, Zhou Xiaochuan, governor of the central bank said earlier.
The State Administration of Foreign Exchange said last week that the future value of the yuan would be stable and the recent appreciation had not resulted an inflow of speculative foreign capital, or "hot money."
China's banks bought a net US$7.8 billion foreign exchange for their clients in October. But in the forwards market, the banks sold US$600 million last month, relieving concerns about a surge in capital inflow pressures.
"Domestic demand and supply of foreign exchange is basically balanced, and market expectations for yuan's future trend is stable," the SAFE said. "China's balance of payment will remain an equilibrium, and there will be more two-way flow concerning cross border capital movement."