Tags: china | yuan | currency | dollar

China Central Bank Reins in Yuan Rise With Weaker Fix

Thursday, 01 Nov 2012 08:23 AM

 

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China's central bank set a weaker midpoint for the yuan against the dollar on Thursday aiming to slow the currency's rise, dealers said, as it hit the strong-side limit of the trading band for a third straight day.

The People's Bank of China set its midpoint at 6.3017 per dollar, slightly weaker than Wednesday's fix of 6.3002.

Traders said this suggested that the central bank was looking to rein in yuan appreciation, and that without the central bank's actions the currency would most likely be strengthening further.

"In the market everyone is selling dollars and less people are buying them. It's certainly possible that (without the trade limit), the rate could break the 1 percent barrier," said a Shanghai trader at a Chinese city commercial bank.

The central bank widened the trade band limit in April, allowing the exchange rate to rise or fall 1 percent from the mid-point set by the central bank each day.

The yuan opened at 6.2394, within 0.02 percent of the strong-side boundary, but weaker than Wednesday's record strong close of 6.2372.

The currency strengthened in the morning and hit the strong-side boundary of 6.2387 at 11.27 am (0327 GMT) before weakening slightly to 6.2392 around midday.

Thursday was the third straight day the upper limit of the trading band has been reached, and the fifth time in six trading sessions since it was hit for the first time last week.

Traders said the midpoint would likely stay between a high of 6.2950 and a low of 6.3150, while the spot rate would maintain its pressure on the 1 percent strong-side limit.

Analysts suggested the yuan's recent strength against the dollar may be due in part to a decrease in outflows of speculative money.

According to analysis by Bank of America Merrill Lynch, capital outflow in September more than halved against August, narrowing to 30 billion yuan. This may have helped reduce demand for U.S. dollars and supported a rise in the spot and forward yuan price.

Positive purchasing managers index (PMI) data, released on Thursday, may also have given the Chinese currency a boost.

China's official factory PMI rose to 50.2 in October from 49.8 in September, recovering from a two-month dip into contracting territory, the National Bureau of Statistics said.


© 2014 Thomson/Reuters. All rights reserved.

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