China - China's yuan ends at new record high

SHANGHAI - China's currency ended at a record high against the US dollar for the second straight day Wednesday, in what analysts said could be a response to US criticism over claims the yuan is vastly undervalued.

The yuan has strengthened around two per cent against the greenback since the end of July, ahead of US presidential elections and amid growing confidence in the Chinese economy, which has shown signs of bottoming out.

The yuan - which trades in a tightly-controlled band - ended at 6.2372 to the dollar on Wednesday, marking the strongest finish since 1994, when the country launched its modern foreign exchange market.

It closed at 6.2405 yuan (S$1.22) to US$1.0 on Tuesday.

Analysts say China may be allowing the yuan to appreciate to defuse criticism that the unit is grossly undervalued, ahead of the US elections on November 6 and an upcoming US government report on exchange rates.

"We suspect this is in large part an attempt to neutralise the currency issue ahead of the elections," Capital Economics said in a research note on Tuesday.

"If we're right, this burst of renminbi (yuan) strength won't last."

China's exchange rate has been a long-running source of friction with the United States and presidential hopeful Mitt Romney recently vowed to brand the country a currency manipulator.

The US Treasury Department issues a semi-annual report on exchange rate policies that addresses China, among other countries, which is expected to be released some time after the G-20 meeting in November.

Investment bank UBS also said the yuan's appreciation would slow but predicted more volatility, adding that it would stay in a range of 6.2 to 6.4 over the next 12 months.

"Given the weak export growth, we believe the government has no appetite to let the (Chinese yuan) appreciate steadily and consistently," it said in a research report this week.

A stronger currency makes China's exports, the mainstay of its economic growth, more expensive.

AFP

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