China's yuan was virtually flat on Wednesday, as the market took a cautious attitude following data the previous day showing a fall in the country's annual trade surplus and a marked slowdown in imports. Spot yuan closed at 6.3155 on Wednesday, virtually unchanged from Tuesday's close of 6.3150.
The People's Bank of China (PBOC) set the mid-point 16 pips higher at 6.3155 in response to a slight weakening of the dollar overnight, extending its recent tight link to the dollar index. In the offshore market, one-year non-deliverable forwards traded at 6.3130 at late afternoon, implying a 0.01 percent appreciation over the next year, marking the first day since November 30 that the one-year NDF market has implied appreciation.
PBOC typically adjusts its mid-point in the opposite direction of the overnight dollar index. Both the PBOC and market participants appear to be taking a cautious approach to the exchange rate in response to global uncertainty, which was further underlined by December trade released on Tuesday.
The data showed China's trade surplus declined to $155 billion for full-year 2011, down from $177 billion in 2010. Traders say this yearly decline makes significant yuan appreciation less likely in 2012. "The narrowing trade surplus means that supply and demand for renminbi are approaching a balance, so the appreciation pressure will be reduced," said a forex trader at a major state-owned bank in Shanghai.
Import growth slowed sharply to 11.8 percent year on year, down from 22.8 percent in November. Exports were more resilient, rising 13.4 percent year on year in December, down slightly from 13.8 percent growth in November. The yuan has now appreciated 8.1 percent in nominal terms since it was de-pegged in June 2010. It has depreciated 0.3 percent in 2012.
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