The China Thread

China yuan hits record final high of 7.8051 on OTC market at end-2006

BEIJING (XFN-ASIA) - The yuan finished at a record high of 7.8051 to the
dollar on the over-the-counter (OTC) market today, the last trading day of 2006.
It strengthened from 7.8141 yesterday.
On the exchange-traded market the yuan also closed at a record high level of
7.8050 against its previous close of 7.8138, according to a Shanghai-based
trader.
The central bank set the yuan central parity rate at a "surprisingly high"
level of 7.8087, traders said.
This compared with Thursday's 7.8149 -- which had been a record central
parity rate against the dollar.
Despite the record central parity rate, the yuan failed to break through the
7.8 barrier during trading today. The 7.8 level is a key psychological barrier
as it is the Hong Kong dollar's exchange rate against the US dollar.
There has been considerable speculation about the yuan's trend once it
reaches parity with the Hong Kong dollar.
The yuan, however, has already exceeded the Hong Kong dollar at least for
retail exchanges of bank notes. Mainland banks are now buying Hong Kong dollars
at rates that value the territory's currency slightly below the value of the
yuan.
On the OTC market today, the yuan traded between 7.8102 and 7.8030 while it
moved between 7.8095 and 7.8040 on the exchange-traded market.
The yuan rose nearly 3.4 pct against the US dollar this year, and traders
said they expect a greater increase in 2007.
"The high central parity rate might be a central bank signal, that the yuan
will increase at a faster pace next year," a Shanghai-based trader said.
Fan Gang, a central bank adviser, said that a modest appreciation of the
yuan is good for China though a large adjustment would be impossible for the
Chinese government to accept as it would hurt employment.
juan.chen@xfn.com