China's yuan edged up slightly against the dollar on Tuesday after the central bank set a stronger midpoint, but it remained close to its lower daily limit as the market expected it to fall further. Traders said spot yuan trading was thin in the past two days as the central bank had stepped in to prevent it from hitting the lower daily trading band, thus dampening their trading appetite.
"Whenever the yuan is close to the limit, there are big banks buying it. So what is the point of selling it down?" said a trader at a Chinese bank in Shanghai. "By doing this, the central bank is sending out a clear signal that is 'I'm here in the market'", the trader said.
The People's Bank of China set the midpoint rate at 6.1369 per dollar prior to market open, firmer than the previous fix of 6.1385. Yuan spot trading opened at 6.2563 per dollar and was at 6.2561 near midday, 36 pips stronger than the previous close and 1.94 percent weaker than the midpoint.
The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day. The Chinese currency has declined 0.8 percent so far this year and the trend is likely to continue given the strength in global dollar index and expectations the central bank will have to ease policy further to cushion a further economic slowdown.
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