SHANGHAI: The yuan was little changed against the dollar on Monday as the market expects the Chinese currency to remain largely stable in the near term despite a slightly stronger mid-point fixing.
Spot yuan hit the lower limit of its daily trading range again, suggesting that many foreign investors were selling yuan in the domestic market as they expect the safe-haven dollar to firm amid the euro zone's debt crisis.
The People's Bank of China has kept its mid-point, through which it guides the yuan's movements, relatively firm to deflect speculation that the yuan would start to depreciate, dealers said. In spite of those efforts, a shortage of dollars onshore amid broad dollar strength in global markets has repeatedly pushed the yuan to trade lower than the reference rate.
"The central bank has no intention of letting the yuan depreciate or appreciate for now. Keeping the yuan in a small range is the primary goal," said a dealer at an Asian bank in Shanghai.
China seems to be wary of sharp yuan appreciation amid weak external demand and financial market turmoil caused mainly by the euro zone debt crisis, and will likely keep the currency stable for the rest of this year, traders said.
The PBOC has also acted to limit how much the yuan can fall by setting a slew of relatively stable mid-points.
Spot yuan stood at 6.3651 versus the dollar by midday, little changed from Monday's close of 6.3641. It has still risen 3.53 percent so far this year and 7.24 percent since its depegging in June 2010.
Before trading began, the PBOC fixed the day's mid-point at 6.3334, slightly firmer than Monday's 6.3349.
Tommy L. Hong, DBS senior vice president, head of wealth management solutions in treasury and markets, said on Monday at a press conference that the yuan could rise 3.5 percent next year.
Benchmark offshore one-year dollar/yuan non-deliverable forwards (NDFs) have largely been forecasting yuan depreciation in a year's time since late September, reversing a trend of appreciation since the yuan's revaluation in July 2005.
One-year NDFs were bid at 6.3830 on Tuesday against 6.3780 at the close on Monday, implying that the yuan would depreciate 0.78 percent in 12 months from Tuesday's PBOC mid-point, compared with a 0.70 percent fall implied on Monday.
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