SHANGHAI: China's yuan slipped against the dollar on Tuesday after the central bank set its official midpoint at a three-month low, suggesting it is not yet ready to release the recent pressure on the yuan, traders said.
Traders said there were signs companies have become less aggressive in betting on the yuan's appreciation.
"The PBOC appears to be happy with a pause of the sharp yuan depreciation, possibly believing the market has learned a lesson," said a trader at a Chinese commercial bank in Shanghai.
"While we can never be certain of the PBOC's intention, the yuan's movements so far this week appears to hint that the central bank may let the yuan move around 6.15 for now."
On the day, dollar purchases by state banks -- a sign the People's Bank of China is intervening in trading -- appeared to have subsided, traders said.
Spot yuan stood at 6.1499 per dollar at midday, down 0.06 percent from Monday's close after the PBOC fixed the yuan's midpoint at 6.1190, down 0.08 percent from the previous day. It also marked the official base rate's weakest level since Dec. 5, 2013.
Traders said the yuan's daily limit of 1 percent in either direction of the PBOC's base rate implied that spot yuan had little room to move far away from its recent low of 6.1808, its nearly one-year trough hit last Friday.
But they said the near-term trend remained unclear because the central bank could change its stance at any time.
"Judging from Tuesday's midpoint, we can safely say the PBOC has no intention to let the yuan depreciate much in the near term," said a trader at a European bank in Shanghai.
"But if the PBOC lets the midpoint weaken beyond 6.13 or even more, the market should be vigilant that the central bank may be engineering another round of yuan depreciation."
The PBOC surprised global markets since last month when it began engineering a sharp decline in the yuan. Last week, the yuan suffered its biggest-ever weekly decline of around 0.9 percent, capping off its largest monthly loss - 1.4 percent - in February.
Traders reported that onshore and offshore speculators had built up large long positions on the yuan earlier this year after the central bank surprised the market by letting the currency rise 2.9 percent in 2013. That far exceeded initial market expectations for an appreciation of only 1 percent.
Repeated government pledges to quicken the pace of currency reform even as the yuan rallied relentlessly since July 2012, were interpreted by many investors as a sign of more appreciation to come, sparking rampant speculation.
In the longer term, however, the world's second-largest economy is still under pressure from heavy capital inflows both under the current account and the capital account, and the Chinese currency has thus limited room to depreciate, traders said.
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