China's Yuan Rises

China's yuan rose on speculation the government will use strength in the currency to narrow the trade surplus.

U.S. Labor Secretary Elaine Chao said today that the Bush administration will keep pressing China to let the yuan appreciate at a faster pace to help close a trade deficit with the Asian nation. China's trade balance unexpectedly widened 4 percent in July from a year earlier to $25.3 billion, the first increase in four months, according to China customs bureau figures released Aug. 11.

The yuan strengthened 0.05 percent to 6.8450 a dollar as of 5:30 p.m. in Shanghai, from 6.8481 yesterday, according to the China Foreign Exchange Trade System. The currency is allowed to trade by as much as 0.5 percent against the dollar either side of a daily rate set by the central bank, which was fixed at 6.8400 today.

The yuan has weakened 0.2 percent versus the dollar this month, after a 6.9 percent gain in the first seven months of 2008. It fell by the most in four weeks yesterday.

The ICE futures exchange's Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, rose almost 1 percent today. It touched 77.571, the highest since December 2007.

U.S. Treasury Secretary Henry Paulson said Aug. 19 that China must let its currency appreciate to curb domestic inflation and defuse tensions in Congress that may prompt trade penalties.

China's yuan has gained 8.3 percent versus the euro and 4.3 percent against the yen this quarter, compared with a 0.09 percent advance versus the dollar. The central bank manages the yuan's exchange rate against a basket of currencies, including the yen and the euro, after scrapping a peg to the dollar in 2005.

They advised investors to purchase the yuan's one-month forwards contracts. Non-deliverable forwards show the currency will fall 0.2 percent to 6.8580 to the dollar in one month.

China, Bloomberg
8/26/2008 6:21:26 AM