Wednesday, 18 July 2012 10:16
SHANGHAI: The yuan opened slightly higher on Wednesday as the central bank continued to push the official midpoint up in reaction to another overnight decline in the dollar index.
The central bank set the official midpoint at 6.3140 per dollar, following its custom of moving the fixing up or down in response to moves in the dollar index.
For a third consecutive day, the dollar slipped slowly away from the two-year high it hit against a basket of currencies on July 12.
However, spot prices showed increasing resistance to the strengthening midpoint, opening at 6.3718 and remaining in that neighbourhood all morning.
The spread between the midpoint and the spot has widened steadily in July and stood at 584 points at midday, closing on its all-time record of 595 points away from the midpoint, hit in June.
Traders said the market has been tepid all week.
"These last few days there's been no movement, the market has no interest in trading," said a trader at a bank in Shanghai.
Expectations that continuing weak economic data in China and the US will lead to more easing policies on by both appears to have been priced in as markets await more information.
The dollar index has also flattened out in intraday trade.
Offshore yuan markets also remain flat. Non-deliverable one-year forward contracts traded in Hong Kong changed hands at 6.4130 at midday, implying depreciation of around 0.6 percent in one year, but analysts caution that differing interest rates in Hong Kong and the mainland account for part of the discrepancy in rates.
Offshore yuan deposit exchange rates remain tightly bound to the onshore rate at 6.3730.
Copyright Reuters, 2012