The Chinese yuan muscled to a seven-month high on Thursday, punching through the key 6.30 support level on strong dollar selling by state banks, with traders uncertain if the moves represented central bank intervention or a move by clients to reduce US dollar bank deposits. Spot yuan hit 6.2945 per dollar at mid-morning, its strongest point since early February, and traded at 6.2978 at midday, a gain of 0.2 percent over Wednesday’s close. At it its midday level, it would be the currency’s strongest close since late March. “We were taken a bit off-guard. A few banks started dumping dollars. It was strange because the midpoint price was fairly stable. It seems a few banks have big dollar positions they want to clear,” said a trader at a shareholding bank in Shanghai. Others interpreted the fact that the big four state banks were the main sellers in the market as evidence of intervention by the central bank. But it’s not clear what circumstances would motivate the People’s Bank of China to actively push the yuan higher at this moment. The yuan closed at a four-month high on Wednesday. Moreover, the central bank set its daily fixing at 6.3380 on Thursday, barely stronger than Wednesday’s fix. There was speculation in the market rumors that an official announcement of dates for the upcoming Party congress, which will usher in China’s once-in-a-decade leadership transition, will come soon. According to the speculation, the congress could begin on October 10. The early date would indicate relative stability and unity among top leadership, which would inspire confidence in the Chinese economy in general, as well as raise hopes for financial reforms that could open up Chinese financial markets to greater foreign investment. “Announcing the dates would mean that things have settled down at the top. That means maybe some policies could be on the way,” said a trader at a different shareholding bank. Another scenario is that large corporate clients - many of whom transact through the large state banks - have lost their appetite for holding onshore dollar deposits. Onshore dollar deposits grew rapidly through July this year, as global safe-haven demand for dollars and the prospect of yuan depreciation persuaded many Chinese export firms not to convert the dollars they received through trade into yuan, as they had in previous years. But dollar deposit growth slowed in August, as the yuan’s fortunes improved and the glut of dollars onshore pushed down dollar deposit rates, making such deposits less attractive. Some traders say September could see the first monthly decline in dollar deposits of the year. From : Khaleej times.