The yuan ended sharply lower against the dollar on Monday as China's central bank again set a lower reference rate and the dollar continued its rally in overseas markets, dealers said. The yuan ended at 7.3873 per dollar, down from Friday's close of 7.3715, after touching an intraday low of 7.3877 in the afternoon.
Before the market opened on Monday, the central bank set the yuan's mid-point at 7.3790, sharply lower than Friday's reference rate of 7.3589. A dealer at a Chinese bank said the yuan would soften further this week in a technical pull-back after it jumped from around 7.40 earlier this month.
Also, onshore dollar demand may rise temporarily this week because of Beijing's latest bank reserve ratio hike, which takes effect on December 25. In recent months the central bank has asked some Chinese banks to pay reserve hikes in dollars, not yuan.
But this should not cause a sharp fall in the yuan, which has initial technical support around 7.3800, its late November peak, and stronger support around 7.4000. "I think the dollar demand will mainly come from smaller banks - big banks are already sitting on large amounts of dollars," the dealer said.
One-year dollar/yuan non-deliverable forwards rebounded in response to the dollar's global recovery to 6.8030/6.8080 from 6.7550/6.7600 late on Friday. The dollar, which had been given a shot in the arm by strong US inflation data last week, hit a two-month high against a basket of major currencies on Monday in thin year-end trading.
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