SHANGHAI: Spot yuan prices softened slightly on Thursday but still near a five-month high against the dollar, despite the central bank setting the dollar/yuan midpoint weaker for the third day in a row.
The People's Bank of China (PBOC) fixed the yuan midpoint at 6.3459 prior to the market open, slightly weaker than Wednesday's fixing of 6.3443, after the dollar index moved upward in overnight trade.
Spot yuan softened against the dollar in the morning, but then firmed again over the afternoon to close at 6.3025, just five points weaker than Wednesday's close.
A trader at a major Chinese bank said a spate of dollar buying by banks in the morning gave way to another round of dollar shorting in the afternoon.
Because Thursday's midpoint weakened, the spread between spot yuan and midpoint prices rose again, marking a new record divergence for the second straight day. The spot closed 434 points stronger than the midpoint, a divergence of 0.7 percent, up slightly from the closing spread on Wednesday.
This is the yuan's widest divergence from the fix since the central bank doubled the yuan's daily trading band from 0.5 percent to 1 percent in April.
Traders have different explanations as to why spot prices have moved up so strongly this week in defiance of central bank guidance.
They say corporate customers - in particular oil companies - prefer to stock up on dollars before holidays, which would ordinarily cause the yuan to weaken.
But some traders said the Bank of China (BOC) had been dumping massive amounts of dollars into the market over the course of the week, forcing the yuan to appreciate in value in the spot market.
Traders said they now expect the yuan to move between 6.30 and 6.31 for the rest of the week.
Comments
Comments are closed for this article.