The yuan closed down slightly to the dollar on Thursday after the People's Bank of China fixed its daily mid-point slightly weaker for the second day, in a sign that the central bank does not want to see non-stop rises for the Chinese currency. The PBOC recently fixed a slew of record high mid-points, indicating the government may be using the yuan's exchange rate as part of its weaponry to fight high inflation.
The yuan closed at 6.5618 versus the dollar, down slightly from 6.5593 at Wednesday's close. The currency has now risen 4.02 percent since it was depegged in June 2010, and 0.42 percent so far this year.
Before trading began, the PBOC fixed the yuan's mid-point at 6.5625, marginally weaker than Wednesday's 6.5601. The pullback came after the central bank set two record high mid-point's on Monday and Tuesday.
The HSBC flash manufacturing purchasing managers' index (PMI), the earliest available indicator of China's industrial activity, rose to a two-month high of 52.5 in March, up from a final reading of 51.7 in February. A figure above 50 points to expansion on the month.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.4460 late on Thursday, up from 6.4410 at Wednesday's close. Their implied yuan appreciation in a year's time fell slightly to 1.81 percent from 1.88 percent.
Since the start of this year, NDF-implied yuan appreciation has persistently lagged market expectations of a 5 to 6 percent rise in 2011 partly because hedge funds, the main players in forwards, cut back exposure to Asian markets in favour of dollar assets as the US economy recovers, traders said.
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