China's yuan set a new post-revaluation high on Monday but traders said the climb was due to a strong mid-point set by the central bank, not Sunday's announcement of a hike in Chinese bank reserve ratios.
The yuan rose to 7.7053 in the late morning, passing Friday's post-revaluation high of 7.7100, after the central bank set a record high mid-point of 7.7055 -- higher than many in the market had expected. The yuan closed at 7.7135 on Friday.
But trade was quiet and traders said the strong mid-point seemed a response to the dollar's record lows against the euro on Friday, rather than an indication of any fresh policy initiative by the Chinese central bank.
Most yuan trade on Monday morning was on the weak side of the mid-point, suggesting the market was not in the mood to use the reserve ratio hike to push the Chinese currency up aggressively.
"The mid-point was related to the weak dollar globally. The yuan's appreciation has been moderate lately, so it's reasonable for it to move up to the next psychological level" of 7.70, said a dealer at a Chinese bank in Shanghai.
Dealers said 7.7000 could be the market's target in the coming days. But they do not expect the central bank to accelerate yuan appreciation over the longer term.
The central bank is now focusing on tightening monetary policy to absorb excess money market liquidity, and it is believed to want to keep the yuan fairly stable until that problem is resolved.
Yuan appreciation has in fact slowed since late February. The Chinese currency has gained only 1.3 per cent against the dollar so far this year, and local dealers expect total appreciation of only about 4 per cent for 2007.