SHANGHAI: The yuan rose slightly against the dollar on Tuesday as the Chinese central bank set a midpoint slightly stronger than the market had expected, indicating the government's intention to keep the currency relatively stable despite the global slowdown, traders said.
The People's Bank of China (PBOC) appears to have intervened in trading recently whenever strong dollar purchases have pushed the yuan sharply lower, traders said, adding that secrecy imposed by the PBOC on its foreign exchange operations makes them unable to say for sure when or if intervention occurs.
Chinese data on Tuesday showed that imports rose 6.3 percent last month from a year earlier, less than half the 12.7 percent increase forecast in a Reuters poll, as domestic demand flagged in the world's second biggest economy.
The June imports number, which is likely to stoke concern that monetary and fiscal policy easing by Beijing since the autumn of last year has failed to head off the risk of a hard landing for the economy, was also down sharply from the 12.7 percent annual rise in May.
But exports grew 11.3 percent in June from a year earlier, faster than market expectations for a 9.9 percent increase, leaving the country with a trade surplus of $31.7 billion in June, compared with a forecast of $21.0 billion and May's $18.7 billion.
"June trade data means that there is no need to panic about China's exports, at least for now," said a trader at a European bank in Shanghai.
"That partially explains why the PBOC is still trying to keep the yuan relatively stable, despite the dollar's steep rise in recent months."
Spot yuan was trading at 6.3672 per dollar at midday on Tuesday, up from 6.3714 at Monday's close. The currency has recently persistently traded below the PBOC's midpoint, which is the base rate from which the central bank allows the yuan to rise or fall 1 percent in a single day.
FLOOR SEEN AT 6.4/DOLLAR
Sentiment on the yuan has increasingly deteriorated this year amid signs that China's economy is slowing down more rapidly than forecast, even as the greenback strengthens in global markets.
China's economic growth slowed to a near three-year low of 8.1 percent in the first quarter, and a Reuters poll showed market players now expect GDP growth to fall to a three-year low of 7.6 percent in the second quarter.
Second-quarter GDP data will be announced on Friday.
A lack of dollar shorts also have kept the yuan under the pressure in recent months, traders said.
The PBOC has recently set a series of midpoints stronger than the yuan's trading level, seeking to keep the exchange rate relatively stable.
On Tuesday, the central bank set the yuan's midpoint at 6.3195, nearly 100 pips stronger than Monday's fix of 6.3293.
The PBOC has mostly set the midpoint stronger than 6.33/dollar level since it widened the yuan's trading band to 1 percent from 0.5 percent in mid-April.
The midpoint's weakest level since then, 6.3355 on May 31, meant that the yuan could fall as low as 6.3989 from the fixing. Traders interpret this as a signal that 6.4 versus against the dollar may be the weakest level that PBOC will tolerate for now.
Offshore one-year non-deliverable yuan forward contracts changed hands at 6.4180 on Tuesday afternoon to imply yuan depreciation of 0.79 percent against the dollar in the next 12 months based on the spot yuan's midday rate.
Offshore spot yuan was trading around 6.3665 at mid-session, roughly in line with the onshore spot level.
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