SHANGHAI: The yuan strengthened slightly on Tuesday as the central bank firmed the official guidance rate, but volatility remained minimal as traders await new signs of direction from Beijing.
Returning from a three-day weekend, the central bank set the official midpoint rate at 6.1527 per dollar on Tuesday morning, 0.05 percent firmer than Friday's close, and the spot rate also strengthened to 6.2070 by midday.
But the spot rate traded within an extremely tight range, as it has consistently done for recent weeks, and remained weaker than the midpoint but within 1 percent range of it.
Beijing widened the yuan's daily trading band to 2 percent from 1 percent in March, but the market has largely declined to explore the new territory or drive additional volatility whether up or down, possibly reflecting concerns regulators are still heavily involved in directing the market.
The US signalled its concern on Monday about the sudden depreciation of the yuan that began in February, which has seen the currency lose 2.46 percent against the dollar in the year to date.
Widely seen as a devaluation deliberately engineered by the People's Bank of China (PBOC) to drive speculators out of the market, it has caused some concern in some corners that the devaluation may turn into a sustained policy intervention to support exporters.
Most dealers and economists believe the PBOC still intends to manage the market in the short run, posing the question of whether regulators will actually take their hands off the wheel in 2014.
However, there is little data to support the argument that reducing the yuan's nominal rate has done much to support China's export industry, which economists say is losing price competitiveness largely due to sustained long-term or secular upward trends in costs such as energy and labour.
The yuan has been steadily rising in trade-related terms, according to index data from the Bank for International Settlements, and the recent depreciation was produced 0.5 percent decline in inflation-adjusted terms in February.
In addition, the trade surplus as a share of GDP - often used in the past to support arguments that the yuan was massively undervalued - has dropped to around 2 percent in 2013, indicating the currency may be approaching equilibrium.
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