The yuan ended down slightly against the dollar on Monday, even as the People's Bank of China set a record high mid-point for the second straight session, with traders expecting Beijing to limit the currency's rise amid uncertain economic conditions. The central bank has changed its tactics since the start of March to create two-way trading for the yuan/dollar exchange rate by letting it trade in a wider range as it tests the waters to allow the market a bigger say in the yuan's value.
Spot yuan ended at 6.3140 versus the dollar, down from Friday's close of 6.3078. It failed to breach its record trading high of 6.2884 hit on February 10, although the PBOC set its mid-point at a record high for a second day. Before trading began the central bank fixed its midpoint at 6.2858, compared with 6.2891 on Friday.
In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDFs implied a yuan depreciation of 0.86 percent late on Monday, up slightly from a 0.62 percent fall they implied at Friday's close. China recorded a rare trade deficit in February, easing pressure on the yuan to appreciate, and that appears to have made the authorities more willing to let the market take a more active role in deciding the yuan's value, traders said.
"The market clearly sees the yuan moving more widely, but it is not so optimistic about the potential for the yuan to rise in the near term," said a trader at a Chinese commercial bank in Shanghai. "This will limit the yuan's gains today." The midpoint is the daily base rate from which dollar/yuan can rise or fall 0.5 percent in a day, used by the PBOC to flag the government's intentions for the currency's value.
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