ET:Yuan ends down on big corporate dollar demand, lower midpoint
SHANGHAI: China's yuan ended down slightly on Wednesday, thanks to the central bank setting a lower midpoint and to strong dollar demand from major Chinese oil companies.
Spot yuan closed at 6.1267 against the dollar, down from 6.1215 at Tuesday's close. On Monday, the yuan had traded as high as 6.1210, its best mark since China set up the domestic foreign exchange market in 1994.
In a sign of demand by Chinese oil companies, volume surged to an unusual large $39.6 billion on Wednesday from $12.5 billion on Tuesday.
Before Wednesday's trade began, the People's Bank of China (PBOC) set the yuan's midpoint at 6.1856, slightly weaker than Tuesday's fixing of 6.1818. The yuan is allowed to rise or fall 1 percent in a day from the PBOC's base rate.
Wednesday's midpoint was in line with a rally in the dollar index. After a series of record high midpoints this month, the market was cautiously watching to see whether the PBOC would guide the yuan weaker on the back of dollar's global performance, traders said.
"Dollar demand from major Chinese oil firms made the yuan slightly more volatile today than most trading sessions and helped depress the currency," said a trader at a Chinese commercial bank in Shanghai.
"The market has also become increasingly cautious on whether the PBOC will change its focus for the midpoint after it has let the official rate hit a slew of record highs," he said.
State-owned Chinese oil giants are banks' most active corporate clients and also the biggest dollar buyers in the yuan market as China imports more than half of its crude demand and is now a large investor in foreign mining assets.
The central bank has used the midpoint to guide the yuan to multiple record highs since early April as the government appears to be gradually moving to create conditions for a more flexible exchange-rate regime.
By letting the yuan rise, the PBOC hopes to find the range where supply and demand for dollars is balanced, traders said, but this has yet to be found as the currency continues to trade near the strong end of the trading band.
