SHANGHAI: The yuan dropped slightly on Thursday, pressured by a weaker fixing from the central bank and customer demand for dollars.
Spot yuan was trading around 6.3088 near midday, 108 pips weaker than March 30, last day of trading before a public holiday.
"Recently client orders for foreign exchange have been relatively large," said a Chinese dealer at a foreign bank in Shanghai.
The central bank followed its usual pattern of setting a weaker midpoint in response to an overnight rise in the dollar index.
But the extent of the weakening in the midpoint was less than the corresponding climb in the index, suggesting the People's Bank of China is not keen to push the yuan too low.
The central bank's yuan midpoint of 6.3035 was 97 pips weaker than on March 30.
The midpoint fixing is the base rate the PBOC uses to flag the government's intentions for the yuan's value, and from which the currency is allowed rise or fall 0.5 percent in a single day.
Spot yuan has consistently traded weaker than the midpoint fixing since mid-March, which may indicate market pressure for depreciation.
Since China's landmark de-pegging of its currency in 2005, the yuan has tended to strengthen off the fix on most days. But China posted a monthly trade deficit of $31.5 billion in February, its largest in more than a decade, as weak external demand hit exports.
Amid continued uncertainty about external demand, traders expect the yuan to continue fluctuating around its current level for the next two weeks.
The market will be closely watching trade data for March - due on April 10 - for further signals on the course of the economy.
In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDF implied yuan depreciation of 0.24 percent around midday, narrowing slightly from the 0.44 percent fall implied at Wednesday's close.
But despite signs of pressure for depreciation, onshore traders still expect a climb of around 2-3 percent in 2012.
"The NDF market is probably reflecting more short-term expectations," said a trader at a shareholding bank in Shanghai, citing recent comments by Chinese officials suggesting they believe the exchange rate is close to its equilibrium value.
But most analysts still expect China to run both a trade and investment surplus in 2012, which should ensure that the long-term appreciation trend - while more muted - remains intact.
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