China's yuan firmed against the dollar on Tuesday having earlier hit its weakest level in 4-1/2 years on strong dollar demand, following the central bank's lowest midpoint fix since June 2011. Traders said some major banks had offered dollars after the yuan struck its low point, leading the yuan back up to a stable level. In the spot market, the Chinese currency changed hands at 6.4857 per dollar at midday, 0.04 percent firmer than the previous close.
It opened at 6.4897 per dollar and shortly eased to 6.4948, its weakest since May 2011. Prior to the market open, the People's Bank of China set the yuan midpoint rate at 6.4864 per dollar, 0.2 percent weaker than the previous fix 6.4750 and broadly in line with the market close level on Monday at 6.4880. Traders reported that the yuan's rate was dragged by strong dollar demand, as corporates typically need extra dollars for business settlement at the year-end.
But such volatile movements in the spot market do not necessarily represent a trend, traders said. "A dollar-bid tone dominated amid tight money liquidity at year-end, and thus one single trade may push the yuan sharply lower," said a dealer at a Chinese commercial bank in Shanghai. A trader at a foreign bank in Shanghai expected the yuan to be stable, moving around 6.48 for the remainder of the year. On Tuesday, the offshore yuan was trading 1.26 percent softer than the onshore spot at 6.5687 per dollar. The onshore yuan was trading against the euro at 7.1185, almost unchanged from the previous close.
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