SHANGHAI: China's yuan weakened on Friday with bullish market sentiment curbed by what traders suspected was central bank intervention containing the currency's rise.
The yuan closed at 6.2415 per dollar, down 0.1 percent from Thursday's close.
The central bank set its midpoint at 6.2923 per dollar, a mild softening after the dollar index strengthened in overnight trade.
Traders believe there is now a coordinated effort between China's big four banks and the central bank to keep the rate from banging into the top end of the trading limit -- as it did on most days in November and early December -- by stepping in to buy dollars to keep the market liquid.
After reducing its apparent intervention on Thursday, leading to a rise in the yuan and a slump in volume, dollar-buying appeared to resume on Friday afternoon.
Full-day volume totaled $17 billion, more than double Thursday's turnover.
While previous suspected interventions by the central bank failed to restore normal trade, the current intervention has been sustained for nearly four days now.
Traders say the big banks want to maintain the rate near the current level and keep it away from the top-end trading limit.
The People's Bank of China (PBOC) allows the exchange rate to rise or fall 1 percent from the midpoint it sets each morning.
Signs of economic recovery, including unexpectedly strong exports in October, combined with political events such as the US election and China's power transition in November to push up the yuan as corporates unloaded dollars into an already flush market.
The United States enacted a fourth round of monetary easing (QE4) on Wednesday, which dealers and economists said is likely to put pressure on the yuan to rise in 2013, but a trader at a major state-owned bank in Shanghai said that the current bullish sentiment is not a reaction to QE4.
"Next year QE4 might push more liquidity into Hong Kong, and if that is allowed to flow into the domestic market it will strengthen bullish yuan sentiment," she said.
"But the current trend is more about internal factors."
The dollar premium on the one-year swaps was little changed on Thursday after plummeting on Wednesday, due to what traders said was panic selling of long forward dollar positions and the breaching of stop-loss triggers which exacerbated the dive.
The new consensus rate implies an interest rate of 1.09 percent on for one-year USD funds on Friday, down from a five-month high of 1.55 percent on Wednesday, though still elevated compared to the sub-0.6 level where it has hovered for much of the last two months.
One-year non-deliverable forward contracts traded in Hong Kong continued to express expectations for future yuan depreciation, with quotes at 6.3119 in late afternoon. However, analysts say some technical hedging strategies can sometimes distort the NDF market.
China's central bank and commercial banks sold 73.6 billion yuan ($11.8 billion) in foreign exchange on a net basis in November, reversing from October's net purchase of 21.6 billion yuan, Reuters calculation of central bank data published on Friday showed.
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