SHANGHAI: China's yuan gained slightly on Wednesday morning as traders expected the central bank to gradually guide the currency higher despite setting a slightly weaker official daily midpoint against the dollar.
Spot yuan changed hands around 6.1190 per dollar near midday, 0.04 percent firmer than Tuesday's close of 6.1217. The Chinese currency has hovered near its all-time high of 6.1143 since the record was set last Thursday.
The People's Bank of China (PBOC) set its official midpoint at 6.1720, 0.02 percent weaker than Tuesday's fix.
The central bank has set weaker fixings over the last two days following a six-day run of firmer midpoints that helped guide the spot rate to record highs last week.
Traders said the PBOC appears to be using a recent weakening in the dollar index and China's better-than-expected July trade performance as reasons to guide the yuan higher.
"This is the typical pattern of two steps forward, one step backward, that the PBOC has used to guide the yuan's appreciation since the revaluation (in 2005)," said a senior dealer at a European bank in Shanghai.
"Judging from the central bank's recent signals, we may raise our forecasts for the yuan's value at the end of this year, although more observation of the economy is still needed."
The yuan has gained 1.8 percent so far this year, bucking a weakening trend in emerging market currencies, but the bulk of those gains occurred in April and May.
After surprisingly weak exports in June, the yuan's rise fizzled out, leading some traders to speculate that the central bank might sought a mild depreciation. But exports recovered sharply in July, and the PBOC was believed to have engineered the yuan's rise to record highs last week.
"Factors supporting the yuan depreciation have weakened lately, and we no longer expect policymakers to let the yuan depreciate proactively," a research report by China Merchants Bank said on Tuesday.
"The yuan was kept stable even in June when the economy was performing the worst this year," the report said. "We thus forecast that the yuan's exchange rate will retain a trend of measured appreciation or stability."
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