China's yuan floats near month highs after recent fall

HONG KONG: China's yuan traded around the highest levels so far this month on Thursday as the currency extended a recent bounce, though analysts expect more gains only if the broader economic picture brightens.

The yuan's rise this month comes amid the backdrop of a stronger US dollar and has raised some expectations that authorities in Beijing are letting the currency rise again after a recent burst of weakness.

Those expectations were bolstered after the People's Bank of China fixed the yuan in line with bank models in recent days after consistently signalling a weaker yuan for much of April, indicating a preference for a weaker renminbi.

Indeed, the yuan's rise this month has cut its losses to less than 3 per cent against the greenback since the start of 2013, compared with 3.6 per cent in the first four months. On Thursday, the PBOC set the mid-point at 6.1640, in line with bank models and a shade lower than Tuesday's fixing of 6.1636 per dollar.

In late afternoon, spot yuan was changing hands at 6.2269, slightly above Wednesday's close. It briefly hit a high of 6.2247, nearing its highest level this month.
But some analysts warn against reading too much into the recent rise, believing the rebound may have been driven by investors cutting bought dollar positions after recent gains.

Westpac strategists believe the recent move is a tactical opportunity rather than a fundamental shift in outlook as "a more sustained turn around in the yuan is still likely to be dependent on a firmer domestic data back drop."

Perhaps in a signal that authorities may lean towards their preference for a weaker currency in the coming months, Beijing signaled its resolve to shield its export sector.

In a statement on Thursday, China said it will increase support measures for the export sector ranging from increasing financing channels for the trade industry to a reiteration of plans to keep the yuan stable.

China's central bank engineered two phases of yuan weakness in February and April and widened its currency trading band to 2 per cent on either side in March in an attempt to squash speculative bets on the currency.