China's yuan reversed an earlier fall to close firmer against the dollar on Wednesday as state-run Chinese banks sold dollars after the yuan fell to its lower daily limit on speculation that a US bill prodding China to let the yuan rise at a faster pace could spark retaliatory steps.
Spot yuan was pushed briefly to the bottom end of the daily trading band at 6.3916, even though the PBOC had set the day's mid-point higher than Tuesday's close. Worries of China's retaliatory steps eased late in the session as government-controlled Chinese banks appeared to have persistently pumped dollars into the market, pushing the yuan to end at 6.3585 per dollar, up from Tuesday's close of 6.3750. While onshore yuan volatility on Wednesday was related to speculation over the prospects of yuan appreciation, the currency also fluctuated sharply earlier this week and in late September.
Similar reasons were behind a sharp drop in offshore yuan, also known as CNH, on Wednesday, as companies that had built up positions in offshore yuan sold heavily. That was later balanced out by yuan buying in both the CNH and non-deliverable forwards by a large US bank, bringing offshore yuan from a low of 6.5530 per dollar back up to 6.4200 late in the session.
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