SHANGHAI: The Chinese yuan closed flat in range-bound trade on Tuesday near the official midpoint after the dollar recovered some ground following falls on expectations of further monetary easing steps by the US Federal Reserve.
The Chinese central bank fixed the yuan's official midpoint -- from which spot prices are allowed to diverge by 1 percent in either direction -- at 6.3391, a scant 16 pips away from Monday's midpoint and slightly weaker than the closing spot price the previous day.
Spot prices opened nearby at 6.3386 and moved around the midpoint in a narrow range throughout the morning, closing at 6.3351, near Monday's close at 6.3376.
"Transaction volumes are okay, but dealers aren't trading on their own behalf; everything is being driven by customer orders," a trader at a Shanghai bank said.
The dollar index, which tracks the greenback's value against a basket of currencies dominated by the euro, plunged before the opening of the market on Monday in reaction to media reports that the Fed was likely to opt for quantitative easing following another round of lacklustre US employment data.
The dollar has been flat since then, awaiting the end of a Fed policy meeting on Thursday with expectations that it will announce a fresh round of bond purchases to inject liquidity.
OFFSHORE AND FORWARDS MARKETS
Forward yuan rates eased on Tuesday, widening spreads with spot prices after two days of shrinking spreads.
The spread between spot yuan prices and forward prices once were widely viewed as expressing market expectations about how much the yuan would appreciate.
But thanks to increasing bi-directional flows of yuan across China's border into Hong Kong, forwards have become more of a function of interest rate differentials.
The one year non-deliverable yuan forward contract , which is traded in Hong Kong, weakened to 6.4218 by the market close. Its onshore cousin, the one-year deliverable onshore forward also softened slightly to 6.4619 per dollar.
The offshore spot yuan (CNH), traded in Hong Kong, continued to change hands at a slight discount to the onshore yuan at 6.3395.
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