China’s currency hit a record high against the US dollar on Friday, in what analysts said could be a response to US political pressure over claims the yuan is vastly undervalued.
The upcoming US presidential election and expectations the US government will soon release its semiannual report on exchange rate policies could have prompted Beijing to guide the yuan higher, analysts said.
The yuan touched an intraday high of nearly 6.2640 to $1.0, according to the China Foreign Exchange Trade System, marking the highest level since 1994 when the country launched its modern foreign exchange market.
“We don’t rule out the possibility of China taking pre-emptive action ahead of the US election,” Liu Dongliang, an analyst at China Merchants Bank, told AFP.
“But it’s more like this move was meant to respond to the upcoming exchange rate report,” he said, referring to the US Treasury Department’s report on exchange rate policies that will address China, among others.
China’s exchange rate is a long-running source of friction with the United States, which accuses Beijing of artificially undervaluing the yuan to boost exports.
But China claims it is moving towards greater flexibility, earlier this year letting the yuan trade against the dollar in a wider band.
US presidential hopeful Mitt Romney has turned China into a campaign issue and on Thursday he renewed his vow to brand China a currency manipulator.
“The president’s had the chance year after year to label China a currency manipulator, but he hasn’t done so,” Romney said of US President Barack Obama.
When the Treasury report was last released in May this year, it stopped short of accusing China of manipulating its exchange rate, but warned its “significantly undervalued” currency was a brake on global growth.
On Friday, China’s foreign exchange market operator set the trading midpoint for the yuan at 6.3264 to $1.0, stronger than the previous day level of 6.3391.
At 0830 GMT, the yuan was quoted at 6.2672, according to the market operator, strengthening from Thursday’s close of 6.2770.
“There is anticipation the authorities may want to send a signal and lift confidence in the domestic economy by allowing the currency to appreciate,” Jiang Shu, a foreign exchange analyst at Industrial Bank, told AFP.
But Chinese officials have previously said the yuan was nearing “equilibrium” amid signs of capital flight on expectations of slowing growth in the world’s second largest economy.