SHANGHAI: China's yuan barely moved on Tuesday, with traders saying that dollar demand from oil giants offset another stronger yuan midpoint-setting by the central bank.
The People's Bank of China (PBOC) set its midpoint at 6.1556, up 0.01 percent from Monday. Tuesday was the fifth straight trading day on which the official base rate strengthened, although there were no signs that the central bank was intervening in trading to support or depress the yuan, traders said.
Spot yuan stood at 6.2528 per dollar at midday, almost unchanged from Monday's close of 6.2530.
The gap between the spot rate and the PBOC's fixing reached as high as 1.59 percent on Tuesday. That was a notch short of an all-time high of 1.61 percent on Friday, when the yuan hit a six-month low for the third straight day, at 6.2583.
Chinese oil firms - mainly PetroChina and Sinopec Corp - are primary dollar buyers on the domestic market given that the oil trade is still conducted mostly in dollars.
Their demand typically rises in the second quarter compared with the first when China's oil purchases, which account for more than half of its crude consumption, pick up in line with more active economic activities, traders said.
"Dollar demand from oil firms also typically rises before the end of a month," said a dealer at a Chinese commercial bank in Shanghai.
"In previous years when the yuan was appreciating, sufficient dollar supply could easily offset oil firms' demand, but market conditions have changed a lot this year," he said.
The yuan has depreciated 3.18 percent against the dollar so far this year. The PBOC guided the currency weaker starting in mid-January, which traders and economists said was done to deter speculators from betting on one-way appreciation.
The PBOC never said it was deliberately pushing the yuan down, but currency dealers told Reuters they suspected the drop was driven primarily by China's "Big Four" state-owned banks, who started buying up dollars in the domestic foreign exchange market at the central bank's behest.
But later, the PBOC stopped intervening to depress the yuan. In a few cases in recent weeks, state banks even have been seen even selling dollars to support the yuan, traders said.
Despite the recent slightly stronger midpoints, traders widely expect the PBOC not to take any further action with the currency until mid-May, when China publishes April foreign trade data.
Continuous weakness in the yuan has alarmed the Chinese corporate world, which has begun keeping more dollars on hand. Traders say that has caused a subtle change in market conditions, making demand for dollars exceed supply at times.
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