China's yuan closed lower versus the dollar on Monday and finished the month of January with a fall as activity thinned ahead of the week-long Lunar New Year holiday that begins on Wednesday. Sluggish trade has capped the yuan's capacity to strengthen, but the currency is expected to rise steadily after the holiday and is seen appreciating 5 to 6 percent in 2010 based on China's economic strength and its increasing willingness to move into a more flexible exchange rate regime, traders said.
Spot yuan ended at 6.6030 against the dollar compared with 6.5860 at Friday's close. It has now risen 3.38 percent against the dollar since its depegging last June. Before trading began on Monday, the People's Bank of China fixed its mid-point slightly stronger at 6.5891, up from Friday's 6.5930, a move that traders said signalled the central bank was setting a floor for the yuan at 6.60 against the US currency.
The latest rate was 0.2 percent weaker than the 6.5897 hit at the end of December, although the yuan hit a record trading high of 6.5808 this month, guided by a slew of record-high central bank mid-points, the level from which the yuan may rise or fall 0.5 percent on a given day.
The yuan also traded in a rare wide range of 6.5854 to 6.6193 on Monday. Offshore, benchmark one-year dollar/yuan non-deliverable forwards were bid at 6.4730 late on Monday, up from 6.4660 at Friday's close. Their implied yuan appreciation in a year's time fell to 1.80 percent from 1.91 percent.
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