BR: Yuan ticks down on dollar strength, seen stable near term
SHANGHAI: China's yuan edged down on Wednesday, pressured by gains in the dollar the day before, but gradually strengthening demand for the Chinese currency helped limit the fall, traders said.
Spot yuan closed at 6.3625 per dollar, 39 pips weaker than the rate late on Tuesday or a fall of 0.06 percent.
The modest decline fell short of the corresponding rise in the dollar index, which tracks the US currency's value against a basket of currencies heavily weighted towards the euro. The index rose about 0.4 percent overnight.
But the yuan's fall matched the fall in the central bank's midpoint, which it set at 6.3482, 39 pips weaker than Tuesday's fix.
Barring major shocks from abroad, traders see the yuan fluctuating in the 6.35-6.37 per dollar range over the next few weeks.
"With European leaders on vacation this month, the euro is churning in a narrow range, there won't be a major movement until they come back," said a trader at a joint-stock bank in Shanghai.
With broad moves in the euro unlikely for now, traders are focused on customer flow. After several months in which dollar buying strongly exceeded selling in China's interbank market, traders now say that order flow is evening out.
"Recently things have become more balanced," said a trader in a joint-stock bank in Shenzhen.
Banks sold $13.3 billion in foreign exchange to clients in June, while buying only $13.0 billion from clients, data from the State Administration of Foreign Exchange shows.
The excess dollar buying by corporations occurred even as China ran a trade surplus of $32 billion for the month. Absent other factors, a larger trade surplus generally leads to greater forex sales by corporates, who receive forex from customers but need domestic currency to pay expenses at home.
Traders are hesitant to speculate on what accounts for the apparent shift in sentiment by Chinese corporates.
Firms are more likely to hold on to their dollar receipts when they believe that the dollar is likely to appreciate. The uptick in dollar selling could indicate a belief that the yuan - having fallen by 1 percent so far this year - has limited room to fall further.
In the offshore market on Tuesday, one-year non-deliverable forwards were bid at 6.4380 in late afternoon, implying 1.1 percent depreciation over the next 12 months, up slightly from the 1.0 percent depreciation implied at Tuesday's close.
