SHANGHAI: China's yuan strengthened against the dollar on Monday, as better-than-expected economic data offset a weaker central bank midpoint fixing, traders said, as the spot market continued to push the traded rate closer to the midpoint.
Spot yuan stood at 6.1870 per dollar by midday, up 0.07 percent from last Friday's close, only 0.4 percent away from the midpoint, the closest the spot market and the midpoint have been since mid-March.
The People's Bank of China (PBOC) set its official midpoint weaker for the fourth day on Monday, at 6.1622 per dollar, down 0.04 percent from last Friday.
The central bank widened the trading band -- the range within which the spot rate may trade away from the midpoint on any given day -- to 2 percent from 1 percent on March 15, after putting the currency on a sharp depreciation trend.
That helped flush speculators out of the market but also made traders highly conservative, with the spot rate trading consistently far weaker than the midpoint ever since.
However, while the yuan has been appreciating steadily since July 21, traders don't believe the PBOC is ready to tolerate another major rally; thus the spot rate has grown closer to the midpoint because it has been held relatively flat in recent weeks in the face of developments.
"Better-than-expected HSBC preliminary PMI data helps boost the yuan, but the central bank doesn't want the currency to appreciate too fast," said a trader at a Australian bank in Shanghai.
China's factory sector turned in its best performance in five months in May, a preliminary HSBC survey showed last Thursday.
"The yuan has broken the psychologically key 6.20 level and it will float in the range of 6.18 to 6.20 in the short term if a trend of appreciation can be established," the trader said.
"The PBOC is unlikely to intervene as obviously as it did in the past."
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