Yuan Advances Past 7 to Dollar


The yuan rose past 7 to the dollar for the first time since China scrapped its fixed-exchange rate in 2005 as policy makers accelerate gains to cool inflation at an 11-year high.

The currency strengthened as much as 0.16 percent to 6.9907, bringing the yuan's advance to 18.4 percent since the end of the peg. U.S. Treasury Secretary Henry Paulson said last week in Beijing it was ``dangerous'' for the exchange rate not to reflect the fundamentals of the world's fastest-growing major economy.

A stronger yuan helps reduce the cost of food imports and slows the nation's export-led expansion. China's consumer prices jumped 8.7 percent in February from a year earlier on higher food costs, raising the risk of unrest as Beijing prepares to host the Olympic Games this summer.

The yuan rose 0.14 percent to 6.9916 at the 5:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. The yuan has taken less than six months to break 7 to the dollar after taking 1 1/2 years to climb to 7.5 from 8. Forward contracts show traders are betting on an 11.2 percent advance to 6.2898 in the next 12 months.

The currency's gain against the dollar since the peg ended compares with 5.5 percent for the Taiwan dollar, 9 percent for India's rupee and 34 percent for the Philippine peso. The yen has climbed 11.9 percent and South Korea's won 6 percent.

Premier Wen Jiabao pledged ``forceful'' measures last month to tackle inflation and narrow a record trade surplus that has flooded the economy with cash, swelled currency reserves to at least $1.5 trillion and fuelled tensions with the U.S. and Europe, its largest trading partners. The People's Bank of China on March 18 ordered banks to set aside more reserves for the second time this year to slow expansion in money supply.

China's quarterly trade surplus fell for the first time in more than three years in the three months to March 31, according to calculations based on machinery and electronic trade data released by the Ministry of Commerce. Inflation in March slowed to 8.2 percent, state-run China Securities Journal reported on April 7.

Since ending the peg, China has managed its exchange rate against a basket of currencies including the euro, yen, and British pound. The central bank set its reference rate for trading today at 6.9920 per dollar. The yuan is allowed to trade up to 0.5 percent either side of the rate.


TradingEconomics.com, Bloomberg
4/10/2008 10:14:22 AM