SHANGHAI: China's yuan rose slightly against the dollar on Tuesday amid strong dollar sales, but dealers cited possible central bank intervention to temper the currency's gains.
The People's Bank of China (PBOC) fixed a firmer midpoint which paved the way for a moderate rise, but it likely intervened through major banks to restrain further gains.
The central bank appears to want to narrow the gap between its official midpoint and the spot exchange rate, which has mostly remained near its upper limit of 1 percent stronger than the midpoint since late last year, buoyed by a general oversupply of dollars in the domestic market, traders said.
Spot yuan changed hands at 6.1194 per dollar at midday, up 0.03 percent from Monday's close of 6.1210.
Before trading began, the PBOC set its midpoint at 6.1612, or 0.05 percent stronger than Monday's 6.1642. But in trading, the central bank apparently acted quickly to curb expectations of yuan appreciation, traders said.
"Today's midpoint sparked some dollar sales early in the session that quoted the yuan relatively strong, but these sales were quickly overwhelmed by larger transactions quoting the yuan around 6.12," said a dealer at a Chinese commercial bank in Shanghai.
"It's widely suspected in the market that the PBOC has used primary dealers to keep the yuan largely stable."
The PBOC has recently signalled its intention to keep the spot yuan stable around 6.12 versus the dollar, traders said, adding that if the central bank continues setting its midpoint stronger while keeping its rate in trading relatively stable, the gap between the two rates will gradually narrow.
They said China may want to take a wait-and-see attitude towards the yuan's value for now amid a general trend of depreciation of Asian currencies in recent months.
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