The Chinese yuan rose sharply against the U.S. dollar on Monday after the Chinese central bank set a higher reference rate for the Chinese currency following Friday's poor U.S. jobs data.
Before the opening on Monday, the central bank fixed the yuan's daily mid-point at 7.5252 -- the highest level since the currency's July 2005 revaluation, and up strongly from Friday's reference rate of 7.5411 and traded close of 7.5395.
The yuan was trading at 7.5254 at mid-morning on Monday, after hitting a post-revaluation high of 7.5230.
"The yuan's strength this morning is because of the weak U.S. jobs data on Friday and the weak performance of the dollar thereafter," said a dealer at a Chinese bank. "This is a natural response to the weakening U.S. dollar."
The dollar slid to a 15-year low against a basket of currencies on Monday, after data showed U.S. employers cut jobs for the first time in four years, stoking expectations for a hefty Federal Reserve rate cut this month.
Also prompting dollar sales in the Chinese foreign exchange market on Monday were expectations that Chinese data due on Tuesday would show a high trade surplus and inflation.
China's trade surplus for August could be the second biggest on record. The median forecast of 19 economists polled by Reuters is for a surplus of $26.0 billion against $24.4 billion in July.
Meanwhile, the market is expecting August consumer price inflation at a 10-year high.
Traders said that as long as the dollar continued to slide globally, the Chinese central bank would probably let it continue falling against the yuan.
But they noted that the yuan did not trade far above its mid-point on Monday morning, showing the market remained reluctant to push the currency up aggressively after the central bank last week set a series of low mid-points to slow yuan appreciation.
One-year dollar/yuan non-deliverable forwards were quoted at 7.1680/7.1730 on Monday morning, compared with 7.1800/50 in late trade on Friday.
The new level implied yuan appreciation from Monday morning's mid-point of between 4.91 and 4.98% in a year's time, not significantly changed from Friday's implied 4.96 - 5.03%.