The yuan ended slightly lower versus the dollar on Wednesday after the People's Bank of China set a weaker mid-point, signalling it may not be willing to let the yuan rise too much ahead of a crucial political session. Spot yuan ended at 6.5727 to the dollar, down from Tuesday's close of 6.5703 and has risen 3.85 percent since its depegging in June 2010. It is still within arm's reach of its record trading high of 6.5654 hit on February 21.
Before trading began, the PBOC fixed the yuan's mid-point at 6.5736 versus the dollar, slightly weaker than Tuesday's 6.5706, which was only one pip from the fixing's record high of 6.5705 also hit on February 21. The PBOC has already been using its fixing to guide the yuan to a slew of record highs this year and traders believe it is poised to let the currency hit more records in coming months.
The fixing, from which the yuan can trade up or down a maximum 0.5 percent in a given day, is used by the PBOC to express the government's intentions for the currency. Benchmark one-year dollar/yuan non-deliverable forwards (NDF) were bid at 6.4120, marginally up from 6.4100 at Tuesday's close. Their implied yuan appreciation in a year's time fell to 2.52 percent from 2.55 percent.
For the past couple of months, NDF-implied yuan appreciation has persistently lagged market expectations of a 5 to 6 percent rise in 2011 partly because hedge funds, the main players in forwards, cut back exposure to Asian markets in favour of dollar assets as the US economy recovers, traders said.
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