BEIJING/SHANGHAI: The yuan edged up against the dollar on Thursday morning but traded below the Chinese central bank's mid-point, as the market showed still decent dollar demand at the year-end.
Traders said prevailing risk aversion in the global market on worries about the spreading euro debt crisis would continue to push the dollar up, which could be a major drag on the yuan at least in the near term.
"The global market climate, plus the traditional strong corporate demand for dollars at the year-end, would cap the yuan's gains," said a trader at a state bank in Beijing.
He added that the chance was very small of seeing any sharp yuan movements in the last month of this year.
"I think the yuan will basically move on par with the relatively smooth curve seen in October and November, unless the central bank adopted intensive easing measures, which may point to the risk of a hard landing for the economy," he said.
China's central bank cut the reserve requirement ratio for its commercial lenders on Wednesday for the first time in nearly three years to ease credit strains and shore up an economy running at its weakest pace since 2009.
Beijing seems to be wary of sharp yuan fluctuations amid weak external demand and financial market turmoil caused mainly by the euro zone debt crisis, and will likely keep the currency stable for the rest of this year, traders said.
The world's major central banks also acted jointly on Wednesday to provide cheaper dollar funding to European banks facing a credit crunch amid the euro zone debt crisis.
But some traders said the effect of such an emergency move could be short-lived, unless policy consensus is translated into concreate actions.
Spot yuan was at 6.3629 versus the dollar, stronger than Wednesday's close of 6.3789. It has risen 3.56 percent so far this year and 7.28 percent since its depegging in June 2010.
Before trading began, the PBOC fixed the day's mid-point at 6.3353, up from Wednesday's 6.3482. The central bank uses the fixing to express the government's intention for the yuan's daily movement.
Benchmark offshore one-year dollar/yuan non-deliverable forwards (NDFs) have largely been forecasting yuan depreciation in a year's time since late September, reversing a trend of appreciation since the yuan's revaluation in July 2005.
One-year NDFs were bid at 6.3730 on Thursday, edging up from 6.3770 at the close on Wednesday, implying that the yuan would depreciate 0.59 percent in 12 months from Thursday's PBOC mid-point, compared with a 0.45 percent fall implied on Wednesday.
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