HONG KONG: China's yuan edged down slightly against the dollar on Wednesday even though the central bank set a near record-high official midpoint and traders expect the yuan to remain rangebound ahead of a US Federal Reserve statement due in the next day.
Spot yuan traded at 6.0716 per dollar near midday, down 0.01 percent from Tuesday's close of 6.0710. The People's Bank of China (PBOC) fixed the midpoint at 6.1105, 3 pips stronger from the previous day's 6.1108.
"Trading today is likely to stay in a narrow range like what happened in the past few days," said a trader at a Chinese bank in Shanghai.
Some market participants believe the Fed will announce a reduction of its monetary stimulus at the end of its meeting on Wednesday, while more of them see that waiting till January or March.
Since Dec. 6, the Chinese currency has seen a fresh round of appreciation with a total gain of 0.3 percent, thanks to continuous capital inflows into the world's second-largest economy and improved sentiment about structural reforms in China.
It is expected to keep the uptrend next year with a mild appreciation of 2-3 percent, while the daily trading band is also likely to be widened as Beijing accelerates reforms for its FX market.
The "redback" remains a regional bright spot and is the sole gainer apart from the Korean won in Asia this year. It has appreciated 36 percent since its landmark revaluation in July 2005.
Some analysts believe the currency is close to its long-term equilibrium level, and one-way appreciation is unlikely to be sustainable.
Now is a good time to have two-way movement in the yuan, Shen Jianguang, China economist at Mizuho Securities in Hong Kong, said in a report.
"We expect the PBOC to expand the daily floating range of the renminbi to plus/minus 2.5 percent, and accelerate reforms leading to renminbi internationalization," Shen said.
Currently the spot yuan is allowed to move no more than 1 percent from the midpoint the PBOC sets each day.
Strength in the yuan and higher returns in yuan assets have attracted continuous fund inflows. China's central bank and commercial banks bought their third-largest volume of foreign currencies this year in November, a sign the country is still drawing foreign capital including speculative funds.
The PBOC and Chinese commercial banks bought 398 billion yuan ($66 billion) worth of foreign currencies last month, a Reuters calculation of central bank data released on Tuesday showed.
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