Yuan ends lower versus dollar

China's yuan ended slightly lower against the dollar on Monday in line with the weakness of other secondary Asian currencies, but traders said the Chinese central bank was expected to continue preventing any major drop. "Trade has been thin recently and focusing nearly exclusively on real demand - there are no speculative opportunities at all because the central bank is keeping the yuan in a narrow range of 6.82-6.86," said a dealer at a European bank in Shanghai.
Currencies such as the Korean won and the Singapore dollar slipped near one-month lows on Monday because of the gloomy outlook for Asian exports in coming months. After Taiwan last week announced a worse-than-expected plunge in December exports, China may on Tuesday report falling exports for the month.
But dealers said such data were likely, in the short term at least, to strengthen the central bank's determination to support the yuan. The yuan's fall to the bottom of its daily trading band against the dollar for the first time at the start of December is now seen by many traders as a test engineered by the central bank to gauge the market's response to any removal of official support for the Chinese currency.
The test showed expectations for long-term yuan depreciation would quickly strengthen if China allowed the yuan to depreciate even slightly, and the central bank does not want to encourage those expectations for fear of prompting large capital outflows.
"The government has apparently become more cautious in considering the possibility of yuan depreciation as the market's reaction would be very strong. And the actual benefit to exporters of a small fall of the yuan would not be large," said a dealer at a major Chinese commercial bank in Shenzhen. The yuan dipped as low as 6.8488 to the dollar in early trade on Monday but quickly bounced back and closed at 6.8370, down only slightly from Friday's finish of 6.8356.
Earlier, the central bank set the day's yuan mid-point at 6.8382, little changed from 6.8363 on Friday. Offshore, one-year dollar/yuan non-deliverable forwards traded within the 6.95-7.10 range where they have remained for the last three weeks.