Yuan steady vs dollar, set to show slight fall for July

SHANGHAI: The yuan was almost unchanged against the dollar on Tuesday and looked set to fall slightly for July, propelled by a general rise in the dollar across global markets during the month.

Traders said they expected the yuan to move between 6.35 and 6.40 per dollar in August, citing a rough balance of dollar supply and demand at these levels.

Any bigger yuan movements outside the expected range depend on a breakthrough in the dollar index.

"Market players do nearly all their business within this range now," said a dealer at a European bank in Shanghai.

"Dollar supply rises each time when the yuan falls to approach 6.40, while demand rises when the yuan gets near 6.35."

Spot yuan was trading at 6.3789 per dollar at midday, compared with Monday's close of 6.3794.

The yuan has generally weakened so far this year, and at Tuesday's midday level, it had fallen 0.39 percent in July and 1.33 percent from the start of this year.

Before Tuesday's trading began, the People's Bank of China (PBOC) fixed the yuan's midpoint slightly weaker at 6.3320 from Monday's 6.3303.

The central bank has recently used the yuan's midpoint, the base rate for the Chinese currency to rise or fall a maximum 1 percent in a day, to signal the government's intention to let it depreciate slightly in line with the dollar's global strength.

But the PBOC has also fixed the midpoint slightly above the yuan's trading levels to prevent the currency from falling too sharply.

Globally, the dollar index has staged a correction since it hit a two-year high of 84.1 last week, trading around 82.7 in Tuesday's Asian session. But it has still risen 1.3 percent this month.

"Unless the dollar index breaches the psychological barrier of 85, the yuan should be able to find a firm support at 6.40 in August," said a trader at another European bank in Shanghai.

Offshore one-year dollar/yuan non-deliverable forwards were largely stable on Tuesday, changing hands around 6.4330 in afternoon trade, implying the yuan would fall 0.84 percent in 12 months from the midday sp o t yuan rate.

Offshore spot yuan traded at 6.3843 in Hong Kong at midday, s lightly weaker than the onshore spot rate.