The yuan fell against the dollar on Thursday, hit by the lingering impact of China's surprisingly low March trade surplus announced on Tuesday, which dampened the near-term outlook for yuan appreciation.
Dealers said a surge in foreign exchange reserves in the first quarter, announced on Thursday afternoon, had limited impact, with several saying the jump could reflect swaps conducted between the central bank and major state-owned banks.
China's foreign exchange reserves rose by $135.7 billion in the first quarter, taking the world's biggest reserve stockpile to $1.202 trillion, the central bank announced.
The increase was $73.37 billion more than the $62.33 billion sum of China's trade surplus and foreign direct investment in that period. "The increase is surprising on the surface and will add to market anticipation of yuan appreciation," said a Shanghai dealer at a European bank. "But a close look at what happened last year may prove it's not that unexpected."
The yuan closed at 7.7260 to the dollar, down from Wednesday's close of 7.7250, but was little changed from 7.7263 in late trade before the foreign exchange reserve data came out.
"The market is jittery over a possible lower dollar supply after China's trade surplus dropped sharply in March," said a dealer at another European bank. "Some dealers suspect the drop could represent a trend, although many analysts don't think so."
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