Yuan edges up vs dollar after mid-point hits one-month high

SHANGHAI: The yuan rose against the dollar on Monday as the People's Bank of China set the mid-point at a one-month high, but the Chinese currency hit the weaker end of its daily trading band on lower expectations over how much room there is for yuan appreciation.

The decreased expectations come amid China's slowing exports growth from a global economic slowdown caused by Europe's debt crisis.

China's export sector, a key driver of economic growth, grew 13.8 percent in November, lower than October's 15.9 percent and the lowest since February.

"The central bank has shown its strong intention to let the yuan be stable, so yuan appreciation is unlikely for now," said a dealer at a Chinese Bank in Shanghai. "Weak exports will especially the limit room for yuan rises."

But he and several dealers also said the yuan had limited potential to fall sharply as China had indicated via its daily mid-point fixing that it seeks to keep the yuan stable, especially amid current global market volatility.

Spot yuan was at 6.3600 and hit limit down for the ninth straight day at 6.3613 versus the dollar. It closed at 6.3647 on Friday.

The yuan has risen 3.61 percent so far this year and 7.33 percent since its depegging in June 2010.

Before trading began, the PBOC fixed the day's mid-point at 6.3297, the highest level since early November and firmer than Friday's 6.3352.

Europe secured a historic agreement to draft a new treaty for deeper economic integration in the euro zone on the weekend, but dealers said that there was little direct impact on spot yuan trading.

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 6.4030 on Monday against 6.4050 at the close on Friday, implying that the yuan would depreciate 1.16 percent in 12 months from Monday's PBOC mid-point, compared with a 1.19 percent fall implied on Friday.