SHANGHAI: The yuan rose slightly against the dollar on Thursday but still hit its lower daily trade limit for the seventh straight day as investors sold yuan amid strong dollar demand at the year-end.
A reason the yuan has repeatedly hit the lower edge of the band is because of strong dollar demand from large companies and a shortage of dollars in the onshore market, dealers said.
"Dollar supply in the market cannot match the demand of our clients, so that's also a reason for the yuan hitting the lower limit," said a dealer at a Chinese bank in Shanghai.
He and several dealers also said some foreign investors were selling yuan for dollars in recent days on expectations of a strong dollar around a two-day summit of EU leaders regarding proposals for tighter euro zone integration.
China remains confident in the euro and is willing to use a "variety of means" to help the European Union surmount member states' sovereign debt crises, Chinese Foreign Minister Yang Jiechi said, according to an official report on Thursday.
Spot yuan was at 6.3586 per dollar by midday, higher than Wednesday's close of 6.3643, but hit limit down at 6.3636.
The yuan has still risen 3.63 percent so far this year and 7.35 percent since it was depegged in June 2010.
Before trading began, the PBOC fixed the day's mid-point at 6.3319, stronger than Wednesday's 6.3342. The central bank uses the fixing to express the government's intention for the yuan's daily movement.
Benchmark offshore one-year dollar/yuan non-deliverable forwards (NDFs) have largely been forecasting yuan depreciation in a year's time since late September, reversing a trend of appreciation since the yuan's revaluation in July 2005. One-year NDFs were bid at 6.3930 on Thursday against 6.3855 at the close on Wednesday, implying that the yuan would depreciate 0.96 percent in 12 months from Thursday's PBOC mid-point, compared with a 0.84 percent fall implied on Wednesday.
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