SHANGHAI: The yuan hit its limit down level against the dollar from the Chinese central bank's mid-point again on Thursday but remained marginally up so far this month as the government showed its determination to dampen speculation of yuan depreciation.
The currency has hit limit down nearly every day in December as global dollar strength and yuan short selling by offshore investors made banks and their clients buy more dollars in the domestic market, the China Foreign Exchange Trade System.
"Yuan pricing had largely been a business of the onshore market until recent months when some offshore investors began to short China, short the yuan," said a dealer at a European bank in Shanghai.
"The government is apparently not happy with this situation, so the central bank set a slew of strong mid-points to decide the yuan's value and keep yuan pricing initiative onshore."
Unlike price movements for an overwhelming majority of products in global markets that compare a day's quotes with the previous day's closing levels, the yuan's trading limits are set against the central bank's mid-point.
The yuan is not freely convertible under the capital account and the People's Bank of China uses the reference rate to control the yuan's movements on behalf of the government.
By setting a slew of relatively strong mid-points, from which the yuan can rise or fall only 0.5 percent in a day, the PBOC managed to keep the yuan largely stable and a marginally 0.08 percent stronger so far in December.
On Thursday, the central bank fixed the dollar/yuan mid-point at 6.3421, weaker than Wednesday's 6.3396 but lagged a 0.4 percent rally in the US Dollar Index overnight.
Spot yuan traded at the limit down level of 6.3738 against the dollar for the bulk of the morning, touching a high of 6.3728 and slipping from 6.3706 at the close on Wedesday, as its fall was confined by the PBOC's mid-point.
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