Yuan Rises on Speculation China Seeks Gain to Cut Trade Surplus

The yuan climbed for the first time in four days on speculation China will allow the currency to rise to curb the trade surplus and cool inflation.

The yuan extended its advance this year to 6.4 percent, more than double the advance in the same period last year. The People's Bank of China said on Aug. 15 that inflationary risks ``can't be neglected'' as the measure of price gains rose in July at the slowest pace in 10 months, according to a second- quarter monetary policy report posted on its Web site.

The yuan rose 0.08 percent to 6.8657 a dollar as of 5:30 p.m. close in Shanghai, from 6.8710 late yesterday, according to the China Foreign Exchange Trade System.

China's trade surplus widened 4 percent to $25.3 billion in July from a year earlier, the first gain in four months, the customs bureau said on Aug. 11.

The trade surplus will stay ``relatively high'' as emerging-market demand and export diversification shield China from the U.S. slowdown, the central bank said in last week's report. A stronger yuan will make exports more expensive and help trim the trade surplus.

The currency's advance should be sustainable as the nation has surpluses in both its capital and current accounts, Wang Yong, a professor at an academy affiliated to the central bank wrote in a research report published in the Securities Times on Aug. 14. The recent weakness in the yuan versus the dollar was mainly a ``correction'' of the excessively fast appreciation in the first half this year, according to the Securities Times.

Consumer price increases slowed to 6.3 percent in July from 7.1 percent a month earlier, the statistic bureau said Aug. 12.

Since then, the yield on three-year notes has slid for five straight days, declining 5 basis points to 3.905 percent by yesterday, according to benchmark rates compiled by the country's biggest debt clearing house. A basis point is 0.01 percentage point.

Yuan Rises on Speculation China Seeks Gain to Cut Trade Surplus

TradingEconomics.com, Bloomberg
8/19/2008 9:02:38 AM