SHANGHAI: The yuan fell slightly against the dollar on Thursday even though the PBOC set a stronger mid-point, after China's exports came in weaker than expected, which may take some pressure off the yuan to appreciate.
Exports in February grew 2.4 percent from a year earlier, sharply below economists' forecast for a rise of 26.2 percent, while imports also undershot expectations.
China's trade swung to an unexpected deficit of $7.3 billion in February. Some analysts said the trade deficit could stretch into the second quarter, offering relief to the international trade imbalance and reducing pressure on the yuan to appreciate.
Spot yuan fell slightly to 6.5741 versus the dollar by midday, against Wednesday's close of 6.5721. The currency has risen 3.8 percent since it was depegged in June 2010.
Before trading began, the PBOC fixed the yuan's mid-point at 6.5713 on the dollar, stronger than Wednesday's 6.5748.
The dollar/yuan exchange rate can trade up or down a maximum 0.5 percent in a given day from the mid-point, which is used by the PBOC to express the government's intentions for the currency.
"The yuan can take a breather for a while after the data," said a dealer at an Asian bank in Shanghai. "But the data just shows a short-term situation. We should wait for more details to confirm the central bank's stance."
On Thursday, a central bank official, reiterating a long-standing description of exchange rate policy, said in a statement that China would keep the yuan basically stable while also strengthening its flexibility over the coming five years.
But many traders believe the yuan still has potential to rise and look forward to a 5 to 6 percent yuan appreciation in 2011 as the government appears to be using the exchange rate to fight high inflation.
Benchmark one-year dollar/yuan non-deliverable forwards (NDF) were bid at 6.4260, up from 6.4110 at Wednesday's close. Their implied yuan appreciation in a year's time fell to 2.3 percent from 2.5 percent.
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