SHANGHAI: China's yuan headed towards its biggest one-day gain in four weeks on Monday, as corporates bet that a recent run of weakness in the currency would leave little room for further decline.
Spot yuan changed hands at 6.2462 per dollar near midday, 0.21 percent stronger than Wednesday's close, the last trading day before markets shut for the Labour Day holiday. If the currency ends at that level, it would be the biggest one-day gain since April 8.
The yuan in April posted its fourth straight month of losses, finishing down 0.7 percent for the month and 3.3 percent for the year.
But market participants now suspect the yuan may have limited room to fall further.
"We believe the fundamental flow of net exporter (dollar) selling will reassert CNY appreciation in H2," Claudio Piron, Asia emerging market forex strategist at Bank of America-Merill Lynch in Hong Kong, wrote in a note on Monday.
Indeed, traders said that corporate yuan demand was strong on Monday. Corporate yuan selling has been the main source of depreciation pressure on the currency since February, as firms sought to unwind long yuan positions accumulated earlier.
Traders widely believe that market intervention by the People's Bank of China (PBOC) was responsible for the yuan's fall, at least in its initial stage, as authorities sought to punish speculators who regarded the yuan as a one-way bet.
Now, however, many traders believe the PBOC has largely achieved this objective and is unlikely to guide the yuan substantially weaker. The spot rate is likely to move between 6.20 and 6.27 per dollar in May, Guangdong Development Bank said in a research note published on Sunday.
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