SHANGHAI: China's yuan traded flat on Monday after the central bank left the guidance rate effectively unchanged, resulting in another day of tightly range-bound trade.
The foreign exchange market has been torpid in recent weeks, with the exchange rate hardly varying in the course of a given day, which traders say is due to ongoing intervention by major state-owned banks to hold back the yuan in the face of appreciation pressure.
The People's Bank of China (PBOC) set the official guidance rate at 6.1329 per dollar on Monday morning, four points weaker than Friday's close, tracking the dollar index which remained similarly flat.
The spot rate was also flat at 6.0928, compared to 6.0932 per dollar on Friday.
Traders expect the PBOC to hold the rate relatively steady through the end of the year.
Regulators have said they intend to further liberalise the forex market, including widening the trading band -- which currently holds the traded exchange rate within 1 percent above or below the official fix.
However, analysts point out that it is difficult for the bank to do so in the face of sustained appreciation pressure.
To hold the yuan within range of the midpoint, large banks must buy up excess dollars on the market on behest of the PBOC.
This keeps the yuan from appreciating and sustains liquidity, but also further encourages bullish sentiment as it reduces downside risk for speculators, who assume the rate will rise further once the PBOC unleashes the market.
The offshore market continues to price in a premium, with yuan traded in Hong Kong (CNH) changing hands at 6.0858 per dollar, 0.12 percent stronger than the onshore rate.
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