Yuan to fluctuate amid hot money influx

The yuan may appreciate against the U.S. dollar in the short-term due to speculative money, but will depreciate in the long run and achieve equilibrium, some experts said.

The yuan's central parity rate against the U.S. dollar strengthened for a second consecutive trading day this week to 6.3067 on Wednesday.

The spot price of the yuan has been stronger than the central parity price since September, indicating robust incoming investment. However, the non-deliverable forwards (NDF) of the yuan, a key indicator of the overseas market's expectations for the currency, show expectations of depreciation in the long-term, said Lu Zhengwei, chief economist with the Industrial Bank.

"It is evidence that the incoming funds are short-term speculative money following political factors," Lu said.

In the spot market, the yuan is allowed to rise or fall by 1 percent from the central parity rate each trading day.

The expectations for the yuan's appreciation in the spot market were sparked by speculative activity linked to the U.S. presidential election and the upcoming congress of the Communist Party of China (CPC).

The expectations also came after the U.S. central bank's third round of bond-buying, known as quantitative easing (QE3), in September.

The spot price of the yuan has risen by about 2.4 percent since July 25 this year.

The recent strong performance of the yuan against the U.S. dollar is a consequence of market demand and the yuan's price is close to equilibrium, said He Jianxiong, head of the international department of the People's Bank of China (PBOC), the central bank.

He made the remarks on Monday at a meeting of finance ministers and central bank governors from the Group of Twenty (G20) in Mexico City.

The yuan's exchange rate will see fewer sharp changes in the future, said Zong Liang, deputy head of the international finance research institute under the Bank of China.

The U.S. presidential election will not have a significant impact on the yuan's exchange rate in the foreign exchange market, He said.

U.S. President Barack Obama has beaten his Republican challenger Mitt Romney to win a second term at the White House, TV networks projected on Wednesday.