(Thestandard, Nov 29, 2006) The yuan hit a new high of 7.84 to the US dollar Tuesday, climbing on a reconfirmation by President Hu Jintao that China seeks balanced trade relations with the United States.
Economists expect the yuan to strengthen to as high as 7.33 to the US dollar over the next 12 months, though the greenback will likely remain within the Hong Kong dollar convertibility band of 7.75 to 7.85.

"I expect the weakness of the US dollar to continue, which will further strengthen Asian currencies, and the yuan will be among them," said Huang Yiping, head Asian Pacific economic and markets analyst at Citigroup.

He forecasts the yen will strengthen to 108 against the US dollar over the next 12 months while the yuan will test 7.33 to the greenback.

He expects the euro to have a milder and more gradual rise to 1.24 against the US dollar.

Financial Secretary Henry Tang Ying-yen reiterated Tuesday that the appreciation of the yuan is not expected to have a direct impact on Hong Kong's currency, which is pegged to the US dollar.

"The peg has served us very well. I have no intention of changing it," he told a business luncheon. "I don't expect appreciation of the renminbi [yuan] to have any direct impact on the Hong Kong dollar."

The yuan reference rate was set at 7.8487 to the US dollar by the People's Bank of China Tuesday when the market opened.

The mainland's trade surplus was a record US$23.8 billion (HK$185.6 billion) in October.

Late Tuesday afternoon it was revealed Hu, in a telephone conversation with US President George W Bush on Monday, restated his intention of seeking more balanced trade with the United States, sending the yuan to 7.84, a 0.05 percent rise from Monday's close. "China is willing to work with the United States to make our relations stable, sustainable and healthy," Hu told Bush, according to a statement posted on the Chinese Foreign Ministry's Web site Tuesday. Economists expected the yuan to appreciate at a fast pace next year.

Dong Tao, chief regional economist at Credit Suisse, said the Chinese currency will rise 5-8 percent in 2007. "The Hong Kong dollar will continue to be used as a yuan appreciation proxy play," he said. Citigroup's Huang said: "China's trade surplus will remain strong next year and push the yuan appreciation pace."

Source:Bloomberg