ET:Yuan little changed; dollar demand offsets stronger midpoint
SHANGHAI: The yuan was little changed versus the dollar on Tuesday, as strong demand for the U.S. currency from large companies offset a stronger mid point set by the People's Bank of China in its daily fixing.
China has signaled that it will gradually create greater fluctuations in the yuan, and the PBOC has recently allowed the daily midpoint to move largely in line with the U.S. dollar's movements against other currencies.
Spot yuan was at 6.3205 against the dollar by midday, inching up from Monday's close of 6.3233. Before trading began on Monday, the PBOC set the yuan's midpoint at 6.3029, up slightly from 6.3082 previously.
The midpoint is the daily base rate from which the dollar/yuan exchange rate may rise or fall 0.5 percent in a day, and is used by the PBOC to help express the government's intentions for the currency's value.
While the dollar's recent strength clearly suggested higher demand for the greenback, pushing the yuan down from its mid-point for the past couple of days, the outlook for the yuan is still unclear, traders said.
"There is no clear direction in the market for now, so clients' demand is guiding us," said a dealer at a European bank in Shanghai. "However, it seems some profit-taking has capped a sharp fall in the yuan."
Traders are now focusing on economic data for the coming couple of months, which could give more signals on domestic economic growth, which could also determine the yuan's trend.
"The yuan could now be in a consolidation period," said a dealer at a Chinese bank in Shanghai. "If the domestic economy continues to grow smoothly, we still expect a further rise."
Chen Yulu, the head of China's Renmin University, who joined the central bank's advisory monetary policy committee last week, told reporters on the sideline of a conference on Monday that if China's economic transformation is smooth, the exchange rate will keep rising.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) implied the yuan would be little changed in 12 months.
The NDFs are also responding to uncertainty over the yuan's future direction, derived from the PBOC's move to widen the currency's trading range in recent weeks.
Some dealers expressed concern that rising expectations in the NDF market of yuan weakness because of moderating economic growth may hurt the spot rate, although others shrugged off those worries.
