SHANGHAI: China's yuan edged up against the dollar on Tuesday, taking cues from a slightly higher official mid-point fixed by the central bank, traders said.
But the market appears to have gone into a stall in the aftermath of a massive depreciation engineered by the People's Bank of China (PBOC) in February and March, with traders warily watching the central bank for signs of its future intentions.
"The yuan's recent depreciation was totally determined by the central bank, with the market playing little role," said a dealer at a major European bank in Shanghai. "With that in mind, traders are now passively awaiting the PBOC's next signal."
The spot yuan stood at 6.2012 per dollar at midday, 0.27 percent firmer than Monday's close, after the PBOC fixed its mid-point at 6.1503, up 0.03 percent from the previous trading day.
Official data released Tuesday showed China's official Purchasing Managers' Index grew to 50.3 in March from February's 50.2, indicating activity in its factory sector edged up, though the figure is unlikely to dispel concerns that the world's second-largest economy is facing a slow first quarter.
Indeed, a private survey showed China's manufacturing contracted in the first quarter of 2014. The final Markit/HSBC PMI fell to an eight-month low of 48.0 in March from February's final reading of 48.5.
The yuan depreciated 1.2 percent against the dollar in March, its second biggest monthly loss since China established the domestic foreign exchange market in 1994.
It recorded its biggest monthly loss in February when the PBOC surprised the world by engineering a 1.4 percent fall in the currency, in what traders say was designed to punish speculators betting on non-stop yuan appreciation.
The market now speculates the PBOC may let the yuan fall to 6.25 versus the dollar in coming weeks, but it expects the currency to rebound later in the second quarter.
"China's economic data looks quite weak recently," said a dealer at a Chinese commercial bank in Shanghai.
"The central bank will not let the yuan depreciate to the levels that will harm China's economy, such as pushing capital to flow out the country."
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