SHANGHAI: China's yuan was a tad lower against the dollar on Thursday in thin trade ahead of the year-end closing of books, traders said.
The yuan stood at 6.2365 per dollar in late morning, down 10 pips from Wednesday's close of 6.2353. Trading volume was $3.7 billion by 11:30 local time, compared to $4.76 billion at the same time on Wednesday.
"Few banks want to do business except for deals from clients for year-end settlement," said a trader at a foreign bank in Shanghai. "The market is unlikely to return to normal trading conditions until the second week of January."
The domestic foreign exchange market will be closed for the New Year's Day holiday from Tuesday to Thursday next week, leaving only two trading days for the week.
The People's Bank of China (PBOC) marginally weakened its midpoint to 6.2949 from Wednesday's 6.2943. The exchange rate is allowed to diverge by only 1 percent in either direction from the central bank's daily midpoint.
The Chinese currency is up 0.92 percent versus the dollar this year. Most traders believe the yuan will end up around 1 percent for 2012.
However, offshore one-year non-deliverable forwards were quoted at 6.3350, implying the yuan will depreciate over the next 12 months.
The offshore yuan changed hands at 6.2325. The CNH has been at a premium to the onshore spot since late November, but the spread has narrowed significantly as optimism about the yuan's future value moderated in the face of uncertainty over the US budget debate.
If the US cannot reach a deal on its budget, economists warn it could push the world's largest economy back into recession, which would encourage investors to seek safe haven in dollar-denominated assets.
Center>Copyright Reuters, 2012
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