SHANGHAI: The yuan was little changed by midday on Monday as the deadlock in China's onshore foreign exchange market strangled trading volumes, with dealers unwilling to bid for dollars at levels permitted by the central bank.
Spot yuan stayed at 6.2293 versus the dollar throughout the morning, marginally stronger than Friday's close at 6.2301 and the strongest level allowed by official daily trading range set by the People's Bank of China's (PBOC).
The PBOC set its midpoint at 6.2922. The central bank allows the exchange rate to rise or fall by no more than 1 percent from the midpoint it sets each morning.
The yuan has now hit limit-up on the daily trading range for 30 of the last 33 sessions, and traders were uncertain how the standoff will end.
While most market analysts and traders agree that the PBOC would like the market digest the excess dollars in the market without having to buy large amounts of dollars itself, there is disagreement over whether that expectation is realistic.
Traders have generally said the standoff will only end if the central bank either sets stronger midpoints to grant the yuan more room to strengthen, or else intervenes to buy dollars, allowing banks and corporates currently to clear their long dollar positions.
But some believe that pent up dollar demand could re-emerge at the end of this month or early next month.
Oil companies typically have USD accounts payable due near year-end. Such firms have been delaying dollar purchases in expectation of further yuan gains, but will eventually have to buy dollars at the price available, said a trader at a major state-owned bank in Beijing.
She also cited the acquisition of Canadian energy company Nexen Inc by Chinese oil giant CNOOC, just approved by the Canadian government. as a potential big source of dollar demand.
"That's more than $13 billion. If they (CNOOC) go to the market for that, it should open things up," she said.
But if oil-related dollar demand doesn't appear, the deadlock could continue through the end of the year, as many other firms still have long dollar positions that they have yet to unwind.
Those positions were accumulated earlier in the year when the yuan was falling.
Volume was a $355 million in the morning session on Monday, compared to average daily volume of $13.9 billion through the first nine months of 2012.
The yuan has now risen 1.0 percent in 2012 and 2.7 percent since touching a 2012 low point of 6.3967 in late July. ?Reuters
Center>Copyright Reuters, 2012
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