SHANGHAI: The yuan closed slightly weaker on Friday, with traders citing a re-emergence of Chinese corporate demand for dollars, as the central bank set a weaker official trading range for a second day running after the yuan's record high earlier in the week.
The yuan closed at 6.2356 to the dollar, weaker than Thursday's close of 6.2334, 0.17 percent off the record high of 6.2252 struck on Wednesday.
The central bank set its midpoint at 6.2945 per dollar versus Thursday's 6.2905. Under China's managed float regime, the exchange rate can diverge 1 percent either side of the midpoint fix, set by the central bank each day.
The yuan never hit its strong-side limit on Friday, the first time it has failed to do so in the last 14 trading days.
"The central bank's consecutive stronger fixes have buoyed demand for dollars, and even clients who before were steering well clear have warmed back up to buying the currency," said a trader at a large state-owned bank in Shanghai.
"Given (the weaker midpoints) in the last two days, I can't see the recent steep appreciation of the yuan continuing."
Earlier in the week, trading had begun to dry up, as quotes concentrated on the strong side of the yuan's daily trading band, without finding dollar buyers.
Traders were unsure what lay behind the revival in corporate dollar buying on Friday. Some said their re-emergence may be a sign that the yuan's rally since late July may finally be waning. At its peak on Wednesday, the yuan had gained 2.7 percent from late July.
Others noted the central bank was capable of quietly moving behind the scenes to encourage state-owned players, who dominate trade, to buy dollars, but the most overt signal to the market comes from the daily midpoint fixes.
"We're looking to the central bank for where the rate will go next but in the short term things aren't very clear," said a trader at a joint-stock bank in Shanghai. "People trading on their own account don't really want to get involved, we're just waiting to see what happens next."
Better-than-expected trade data in October suggested exporters would have dollars to sell, giving the yuan more fuel to firm, but while some traders see pressure on the yuan to appreciate remaining through December, almost all were agreed that the rally is likely to end by early 2013 as the market gradually absorbs excess dollars.
The Chinese currency is currently 0.9 percent stronger than where it started the year against the dollar.
Data from the Bank for International Settlements show the yuan also strengthened in nominal trade-weighted terms in October, the first time it has done so since July.