The yuan is poised for its fourth straight day of losses on Monday, as the central bank set a weaker mid-point in response to the strong rise in the dollar, which neared a 16-month high against the euro on Friday. Spot yuan traded at 6.3182 at midday on Monday, its weakest point since December 29.
"You can see, recently the dollar is continually rising, so the central bank's intention is very obvious," said a currency traders at a city commercial bank in Shanghai. The People's Bank of China (PBOC) keeps the yuan steady to the dollar to provide a predictable exchange rate for Chinese exporters, most of whom still invoice their trade in dollars.
At the same time, it adjusts the dollar exchange rate in response to sharp movements in the dollar's value against other currencies to prevent softening the indirect influence of such movements on the terms of trade with non-US economies. Though spot yuan fell due to the weaker midpoint, the yuan actually strengthened slightly from the fix of 6.3236, though it did not hit the top of the trading band, which would be 6.2861 based on Monday's mid-point.
This moderate appreciation pressure marks a change from the last week in December, when the spot rate consistently weakened from the fix, prompting talk of depreciation pressure caused by a falling trade surplus and signs of capital outflow. Also in the offshore market, one-year nondeliverable forwards were little changed. They now imply 0.41 percent depreciation over the next year compared with a 0.35 percent fall implied at Friday's close.
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