The yuan closed almost unchanged against the dollar on Friday, but traders said the currency could gain slightly in coming months given the US currency's recent weakening trend. The US Dollar Index appears to have lost its momentum since it hit its recent peak of 81.784 in mid-January, falling 0.5 percent on Thursday.
Traders said the yuan may move narrowly around 6.30 per dollar in coming weeks but could stage a mild gain of about 0.7 percent to 6.25 by the end of the first half year. "The PBOC typically keeps the yuan stable ahead of major Chinese political meetings, so we expect the currency to remain largely unchanged until mid-March when the National People's Congress concludes its annual session," said a trader at a major European bank in Shanghai, referring to China's parliament. Spot yuan closed at 6.2978 against the dollar, edging up 7 pips from Thursday's close as expectations of short-term stability offset a slightly higher mid-point.
The central bank fixed its mid-point at 6.2965 on Friday compared with 6.3031 on Thursday. It has set the fixing in a narrow range after letting it hit an all-time high of 6.2937 per dollar on February 10, which markets construed as a goodwill gesture to the United States ahead of Chinese leader-in-waiting Xi Jinping's visit to that country earlier this month.
A 0.7 percent rise in the yuan in the first half would lag the currency's 1.9 percent appreciation a year earlier. In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDFs implied yuan appreciation of 0.30 percent in afternoon trade, almost unchanged from 0.28 percent they implied at Thursday's close.
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