SHANGHAI: The yuan fell slightly against the dollar in see-saw trade on Tuesday after the People's Bank of China set a weaker mid-point, but the Chinese currency mostly traded in a narrow range.
Some investors sold yuan in early trade, continuing to speculate about its potential depreciation in the mid-term, but strong pressure from the Chinese central bank pulled the yuan back slightly.
"Today's moves have been volatile. After the yuan hit around 6.35, big banks offered dollars, which reflects the central bank's strong intention to halt expectations of yuan depreciation," said a dealer at a Chinese bank in Beijing.
Spot yuan was trading at 6.3415 against the dollar by midday, down slightly from 6.3378 at the close on Monday.
The yuan has still risen 3.91 percent so far this year and 7.64 percent since it was depegged in June 2010.
Before trading began, the PBOC fixed the day's mid-point at 6.3351, slightly lower than Monday's 6.3303. The central bank uses the fixing to express the government's intention for the yuan's daily movement.
The PBOC has been trying to keep the yuan stable by setting higher mid-points when the yuan repeatedly hits the lower end of its daily trading limit. The yuan is permitted to fluctuate within 0.5 percent of either side of the mid-point in a day.
The yuan jumped to a record high last Friday against the dollar on suspected intervention orchestrated by the central bank, its most explicit action in three months to deter speculators from betting on a fall in the currency.
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 6.3970 against the previous close of 6.4170, implying that the yuan would depreciate 0.98 percent in 12 months from the PBOC's mid-point, compared with a 1.29 percent fall implied on Monday.
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