SHANGHAI: The Chinese yuan rose on Monday on strong corporate demand, shrugging off weaker guidance by the central bank, but traders said prospects for further appreciation remained low.
The People's Bank of China (PBOC) fixed its midpoint at 6.1805 per dollar on Monday, 0.03 percent weaker than Friday's fix, responding to a rise in the dollar index since Friday's close.
But the spot rate shrugged off the weaker midpoint, changing hands at low of 6.1300 at midday, up 0.12 percent from Friday's close.
"Maybe because it's the beginning of month, I can see huge yuan demand in the market. Even the big banks are buying yuan," said a dealer at a city commercial bank in Shanghai.
Large banks are often net dollar buys in the interbank market because they serve multinational Chinese firms who import goods from abroad.
After shrinking in June, the gap between the spot rate and the midpoint widened on Monday, suggesting a return of appreciation pressure, at least temporarily. The dollar-yuan rate was 0.82 percent below the midpoint near midday on Monday.
That gap hovered above 0.9 percent for most of the period between the fourth quarter of 2012 and late May, indicating that the PBOC's midpoint was acting as a restraint on strong market pressure for appreciation. But the gap gradually narrowed in June, indicating that some pressure had abated. It fluctuated around 0.5 percent last week.
Despite the unexpected rise on Monday, dealers still don't expect strong appreciation in the near term.
Market pressure and strong central bank fixings combined to lift the yuan by 1.4 percent in April, but capital inflows into China have slowed markedly since then. Traders expect the central bank will hold the steady in the weeks to come.
Dealers said they are also awaiting the result of the G20 meeting and Chinese President Xi Jinping's visit to the United States in mid-July, which could guide the yuan's next move.
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