SHANGHAI: China’s yuan eased against the dollar in thin trade on Monday, as investors stuck to familiar ranges in the final week of 2021 and the currency set for its second straight winning year.

Prior to the market open, the People’s Bank of China (PBOC) set the midpoint rate at 6.3686 per dollar, 6 pips firmer than the previous fix of 6.3692.

In the spot market, the onshore yuan opened at 6.3700 per dollar and was changing hands at the same level by midday, 28 pips weaker than the previous late session close.

Trade was subdued with the spot yuan swinging in a tight range of less than 100 pips, while trading volume shrank to $12.1 billion by midday from a normal half-day volume of about $15 billion.

Several traders said they have already squared their books for proprietary accounts and expected the yuan to hover at current levels in the last week of the year.

The Chinese currency is set for a second straight year of gains, on course to rise about 2.5% against the dollar. That would make it the best performing emerging market currency in 2021, underpinned by robust exports, a growing trade surplus and ample dollar liquidity onshore.

Some analysts question whether yuan strength can sustain next year when major economies are likely to tighten monetary policy, diverging from the PBOC’s easing bias.

“In the near term, USD/CNH will likely stay in a range of 6.35-6.40 with some downside potential,” Gao Qi, FX strategist at Scotiabank said in a note.

“We believe China’s central bank will keep setting USD/CNY with an upward bias if needed to prevent any one-sided speculation on the yuan appreciation,” he said, maintaining his short USD/CNH spot position into Q1 2022.

The central bank reiterated at its fourth-quarter monetary policy committee meeting that it would deepen foreign exchange reforms and increase yuan exchange rate flexibility while guiding companies and financial institutions to be “risk neutral”. By midday, the broad dollar index fell to 96.084 from the previous close of 96.095, while the offshore yuan was trading at 6.3723 per dollar.