Yuan ends up as dollar eases, awaits further signal

SHANGHAI: The yuan ended up slightly against the dollar on Friday, paring the morning's losses as the dollar index dropped during early European trade.

Dealers said investors were adopting a wait-and-see attitude and the dollar's performance would likely guide the Chinese currency's movements in the near term as the People's Bank of China would take time to observe the effects of a series of record highs.

"No big changes are expected, just tracking trading in the dollar," said a dealer at a Chinese commercial bank in Shenzhen. "And it may last for a while."

The PBOC has guided the yuan to a slew of record highs this year, with a rise of 0.9 percent in April.

Dealers said spot yuan would meet resistance at 6.49 for now, before the central bank sends a strong signal allowing the mid-point to breach that level.

China raised bank reserve requirements for the eighth time late on Thursday.

But traders also said that a fall of several pips in the yuan's mid-point lagged far behind a three-month high in the dollar index, reflecting that a momentary retreat in the yuan from record highs would not affect its longer-term uptrend as China uses the exchange rate to beat back inflation.

Chinese inflation eased a touch to 5.3 percent in the year to April from a 32-month high of 5.4 percent in March but was still higher than expected, data showed, keeping the door open for more tightening steps.

Spot yuan ended at 6.4977 versus the dollar, compared with Thursday's close of 6.5000. It has appreciated 5.06 percent since it was depegged from the dollar in June 2010, and 1.40 percent since the start of this year.

Before trade began, the PBOC set the yuan's daily mid-point at 6.5017 against the dollar, weaker than Thursday's 6.5005. The central bank uses the mid-point to express the governments' intention for the yuan's movements.

The dollar index fell 0.5 percent in the afternoon after hitting a fresh three-month high on Thursday.

Offshore, one-year non-deliverable forwards (NDFs) were bid at 6.3610, up from 6.3590 at Thursday's close. Their implied yuan appreciation in a year's time edged down to 2.21 percent from 2.24 percent.