Yuan edges up versus dollar, stability remains catchword

SHANGHAI: The yuan rose slightly against the dollar on Tuesday after the People's Bank of China set the mid-point little changed in the government's latest signal that China will keep the yuan largely stable amid global economic uncertainties, traders said.

The yuan has stopped its appreciation against the dollar since early November, when the PBOC fixing hit a record high of 6.3165, but the PBOC has also acted to limit how much the yuan could fall by setting a slew of relatively stable mid-points.

So the yuan's fixing has fallen only 0.66 percent since its all-time peak, compared with a 4 percent rally in the US Dollar Index so far this month.

Despite global economic woes, China is apparently not engineering a yuan depreciation, traders said, citing lingering US pressure for the yuan to appreciate and China's own need to clamp down speculation about a hard landing of its economy.

"The trend for the yuan to keep stable during global economic uncertainties and to appreciate when global economic conditions stabilise will continue in coming years," said a senior trader at an Asian bank in Shanghai.

"China is not likely to directly confront the United States on the currency front because of strategic considerations as well as the fact that it still records a huge trade surplus."

Spot yuan was trading at 6.3825 per dollar at midday, slightly stronger than Monday's close of 6.3841. It has still risen 3.25 percent so far this year and 6.95 percent since it was depegged from the dollar in June 2010.

Before trading began, the PBOC set the mid-point at 6.3587, only two pips weaker than Monday's 6.3585. The central bank uses the fixing to express the government's intentions for the yuan's movements.

Offshore, some investors have been shorting the yuan since September as China's growth slows down amid global economic problems, including the euro zone debt crisis, raising the possibility of a hard landing, albeit small.

Benchmark offshore one-year dollar/yuan non-deliverable forwards (NDFs) have largely been forecasting yuan depreciation in a year's time since late September, reversing a trend of appreciation since the yuan's revaluation in July 2005.

One-year NDFs were bid at 6.4050 on Tuesday, edging down from 6.4080 at the close on Monday, implying that the yuan would depreciate 0.72 percent in 12 months from Tuesday's PBOC mid-point, compared with a 0.77 percent fall implied on Monday.