* Yuan posts strongest open just shy of trade limit
* Weakens to midday as traders buy cheap dollars
* C.bank looks for balance with slightly stronger fix
* Upward pressure likely to continue, say traders
SHANGHAI, Oct 31 (Reuters) – China’s yuan opened just shy of
its strong-side limit on Wednesady, posting its strongest ever
open as demand for the currency rebounded after appearing to
ease in the previous session.
The yuan opened at 6.2373, just one pip away from
the strong-side trade band limit. That was stronger than
Tuesday’s record-low close of 6.2405.
The rate fell back to 6.2408 around midday as banks used the
opportunity to buy up dollars at the day’s lows.
“In the morning there was some sentiment towards buying
dollars because the rate opened so close to the lower-limit and
couldn’t really fall any further,” a trader at a large
state-owned bank in Shanghai said.
The central bank set its midpoint at 6.3002 per
dollar, slightly stronger than Tuesday’s fix of 6.3028, as it
looked to give the spot rate a bit more room on the strong side
while signalling its basic desire for stability.
But upward pressure on the yuan remained as the euro gained
and the dollar index fell overnight to its lowest point
since Oct. 25. The yuan has traditionally tracked the euro and
other global currencies against the dollar.
An article in the China Daily on Wednesday quoted analysts
suggesting that the cental bank may look to widen the trade band
from its current 1 percent as China looks to liberalise the
market further.
The yuan has now appreciated over 2.4 percent since a
year-low in late July and has repeatedly assaulted the strong
side limit in recent weeks, hitting the limit for the first time
on record last week.
But traders view a second band widening this year as
unlikely. When the bank widened the band from 0.5 to 1 percent
in April this year, it chose a moment of relative stability to
make the move.
That suggests the central bank would be unlikely to loosen
the limit now, when the band has been effective at promoting a
relatively stable exchange rate by preventing overly fast
appreciation.
Traders said that it was more likely that the central bank
would opt to change the way it set the midpoint each day to more
closely reflect the spot market.
They added that while a rate balance was getting closer,
upward pressured remained and the direction of the yuan would
become clearer after November’s U.S. general election and the
once-in-a-decade Chinese National Congress.
(Reporting by Shanghai newsroom; Editing by Kim Coghill)
