Three-day rally pushes RMB to 7-month-high

Updated 2017-06-02 15:56:42 chinadaily.com.cn
An employee at a bank counter in Nantong, Jiangsu province, counts renminbi and dollars.

An employee at a bank counter in Nantong, Jiangsu province, counts renminbi and dollars.

The central parity rate of the renminbi has continued to rally, hitting a seven-month high on Friday, up 0.03 percentage points to 6.807 against the greenback.

The rise comes after the onshore yuan reached a peak of 6.78 against the US dollar on Thursday and offshore yuan reached its highest level since October at 6.72 per dollar.

Investment bank UBS raised its year-end forecast for the renminbi exchange rate from 7.15 to no more than 7, while projecting a mild slump of the currency back to no more than 7.1 by 2018.

The lowered risk of China-US trade friction has contributed to the renminbi's rally, UBS economist Wang Tao said, adding that the foreign exchange reserve will "likely remain above the trillion mark this year".

The improvement also comes on the heels of a tweak to the formula used to calculate the renminbi central parity rate, announced last Friday by China Foreign Exchange Trade System. The new formula allows a dealer to incorporate a "counter cyclical factor" into the existing formula to hedge against fluctuation in market sentiment.

The move will "alleviate the potential for herd behavior in the forex market," according to a statement by the CFETS. Details remain unclear as to when and how the "counter cyclical factor" will be used.

Under China's market-based, managed floating exchange rate system, renminbi's daily trading band against the dollar has been widened to 2 percent around the central parity rate.

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