HONG KONG: China's yuan fell against the dollar on Monday after the central bank set the daily midpoint at its lowest level in eight months to reflect a rebound in the dollar.
Traders said the market was cautious as the Chinese currency's near-term trend was unclear and it was expected to trade narrowly in the absence of clear direction.
The yuan changed hands at 6.2333 at midday, down 0.09 percent from Friday's close at 6.2280. The yuan recorded its strongest week in more than two years last week.
The People's Bank of China (PBOC) set the midpoint at 6.1625, down 0.07 percent from Friday's 6.1581. It was the weakest level since Sept. 9, 2013.
"Demand from clients to buy or sell dollars is weak in morning trade as the market has no direction and takes a wait-and-see approach," said a trader at a Chinese bank in Shanghai.
"The onshore yuan is also affected by the offshore yuan, which is weakened by a stronger dollar index, that has made hedge funds square some of their long yuan positions," the trader said.
The yuan experienced its most sustained depreciation this year since its landmark revaluation against the dollar in 2005 as Beijing aimed to shake out speculative money and prepare for further foreign exchange market reforms.
It had recorded four consecutive months of losses since the beginning of the year, marking a depreciation of 2.9 percent year to date and wiping out all of the gains booked last year.
The outlook of the "redback" remains bearish as reflected in non-deliverable forward contracts that imply the yuan may depreciate 1 percent against the dollar in one-year's time.
However, bearish bets on the yuan fell to its lowest since late February, according to a Reuters poll, as the US Federal Reserve is expected to keep interest rates low for some time while the yuan has started to show some signs of stablisation.
The yuan got a score of 0.31 last Thursday, compared with 0.73 two weeks earlier. A score of plus 3 indicates the market is significantly long US dollars, while a score of minus 3 is significantly short dollars.
China's yuan is moving closer to its equilibrium level, the country's foreign exchange regulator said on Friday as it forecast more volatility in the country's capital flows.
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