Yuan edges down on strong dollar; market awaits key data

SHANGHAI: China's yuan slipped slightly against the dollar by midday on Friday after the People's Bank of China set a weaker mid-point, reflecting the gains in the dollar against other currencies overnight.

But dealers still saw further rises in the yuan on the horizon as China is keen to use the exchange rate as a tool to beat stubbornly high inflation.

"Today's fall is because of the rebound of the dollar these days," said a dealer at a Chinese commercial bank in Shanghai. "But we still believe the yuan has potential to rise further." Spot yuan was trading at 6.3842 versus the dollar, slightly weaker than Thursday's close of 6.3813. It has now risen 3.22 percent so far this year and 6.92 percent since the 2010 depegging.

Before trading began, the PBOC fixed the day's trading mid-point at 6.3896, weaker than the previous day's 6.3859.

The dollar index rose 0.1 percent in Asian trade Friday morning after rising 0.5 percent on Thursday.

Traders said investors remain cautious and the yuan is expected to experience some fluctuations ahead of key economic data, including consumer inflation and trade figures, which will be released from Sept. 9 to 15.

Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.2810 in mid-day trade, edging up from 6.2760 at the previous day's close. Their implied yuan appreciation in a year's time dropped slightly to 1.73 percent from 1.81 percent.

Copyright Reuters, 2011