The yuan strengthened for a ninth day, breaching 6.7 per dollar for the first time since 1993, after President Barack Obama criticized China for using an undervalued currency to gain an unfair trade advantage.
China’s leaders haven’t done “everything they said would be done” to allow appreciation, Obama said at an hour-long town hall discussion in Washington. Yuan forwards jumped the most since June as the dollar weakened against the euro and the yen.
"The yuan’s quicker appreciation is related to the political game between China and the U.S. on currency policy,” said Isaac Meng, a Beijing-based economist at BNP Paribas. “It’s also related to the dollar’s broad weakness because the yuan is managed against a basket of currencies.”
The yuan rose 0.2 percent to 6.7025 per dollar as of 3:24 p.m. in Shanghai, earlier touching a high of 6.6987, according to the China Foreign Exchange Trading System. The U.S. currency slid 0.1 percent against the euro and 0.3 percent versus the yen.
Twelve-month non-deliverable forwards for the yuan appreciated 0.5 percent to 6.5818 per dollar, reflecting bets the currency will strengthen 1.8 percent from the spot rate, according to data compiled by Bloomberg. That’s the biggest gain projected by the contracts in almost three months.
The central bank set the daily reference rate stronger than 6.7 per dollar for the first time since July 2005, when it started managing the exchange rate against a basket of currencies. The currency is allowed to trade up to 0.5 percent either side of the daily fixing, set at 6.6997 today.
'Two-Way Street’
The yuan is “valued lower than market conditions say it should be” and that gives China “an advantage in trade,” Obama said ahead of scheduled talks with Premier Wen Jiabao at this week’s United Nations General Assembly in New York. “We are going to continue to insist that on this issue and all trade issues with China, it’s a two-way street.”
The yuan has appreciated 1.8 percent since June 19, when the People’s Bank of China said it would pursue a more flexible exchange rate after keeping the currency at about 6.83 per dollar for almost two years.
"I still see upside in the yuan given Wen’s going to New York soon,” said Frances Cheung, a Hong Kong-based senior strategist at Credit Agricole CIB. “But I think nothing has fundamentally changed; China’s still going to let the currency rise gradually.”
Treasury Secretary Timothy Geithner said last week the U.S. will use every available tool to urge China to let the yuan rise more quickly. Calls to let the currency strengthen will grow as China faces swelling trade protectionism against its exports, Li Daokui, an adviser to the People’s Bank of China, said Sept. 19.
China has reported trade surpluses of more than $20 billion for each of the last three months and the U.S. estimates it had a deficit of $119 billion with the Asian nation in the first half of 2010. The U.S. reported a trade gap with China of $227 billion for 2009.
