Chinese yuan trades strongly in lead-up to US election and 18th congress

The yuan traded at the strong end of its permitted trading band yesterday ahead of the Communist Party's 18th congress and the US presidential election, but analysts said the currency's strength was not sustainable.

The yuan touched 6.2447 per US dollar in intra-day trading in Shanghai, exceeding the central bank's reference rate by 1 per cent. The spot rate of the yuan against the Hong Kong dollar was down 0.06 per cent at HK$1.2402. The rate hit a record high of HK$1.25 at the end of last month.

The yuan exchange rate is allowed to rise or fall 1 per cent from the midpoint rate set by the central bank every day. This was set at 6.3078 a dollar yesterday, 0.01 per cent higher than the midpoint rate of Monday. The currency normally stays within the trading band.

The currency closed at 6.2456 against the US dollar in Shanghai, little changed from Monday's 6.2454, according to the China Foreign Exchange Trade System.

The yuan has hit the upper limit of the daily trading band a couple of times over the past two weeks, driven by the inflow of hot money, said Zhang Zhiwei, a China economist at Japanese bank Nomura.

The US presidential election and the 18th national congress, which starts tomorrow, were also behind the strong yuan exchange rate, Zhang said.

"It seems that the mainland is more willing to allow a rise in the yuan ahead of the US presidential election," he said.