HONG KONG: China's yuan's crept higher on Tuesday but remained within striking distance of a 18-month low as investors remained cautious on the outlook for the Chinese currency after its recent spell of weakness.
A slew of weak fixings by the People's Bank of China in April dealt yet another blow to speculative bets against the dollar and prompted companies and investors to reduce their short positions rapidly.
While China fixed the yuan's daily mid-point at its weakest level since September 2013, traders said the pace of weakness has eased, indicating the central bank may be stepping back from the currency markets.
In a marked departure from its currency management policy in recent years, China's policymakers engineered a massive weakening of its currency in two phases and also widened its daily currency trading band to 2 percent around a daily mid-point fixing.
"The weakness of the yuan was targeted at hot money inflows and we remain constructive on the Chinese currency in the long term," said Aidan Yao, a senior emerging Asia economist at AXA Investment Management, which manages $700 billion in assets.
On Tuesday, the The People's Bank of China (PBOC) set the mid-point at 6.1636, a shade lower than Monday's fixing of 6.1625 per dollar and its weakest since Sept. 9 2013.
Spot yuan was changing hands at 6.2392, mostly unchanged from yesterday's close.
The currency's latest round of weakness comes in the backdrop of a visit by US Treasury Secretary Jack Lew to China. Lew said it was important for the country to move towards a market-based exchange rate.
Notwithstanding the weakness, some investors are betting on a rebound. 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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