Yuan ends up vs dollar after record high midpoint

SHANGHAI: The yuan ended up against the dollar on Wednesday after the People's Bank of China fixed the midpoint at a record high, indicating that the central bank is prepared to let the Chinese currency stay above the key 6.30 level, dealers said.

The market's expectation for the yuan's uptrend remains intact, but slowing growth in China and the global economy may cap the pace of further appreciation, dealers said.

The yuan is expected to rise only 2-3 percent this year from 4.7 percent last year. The Chinese currency rose 0.24 percent in the month of February, little changed from 0.23 percent in January.

An informal survey of eight China-based dealers showed that China's yuan is expected to appreciate this year but the rate may slow to 0.7 percent in the first half from 1.9 percent in the first half of last year as the world's second-biggest economy adjusts its policies to slowing exports and lower capital inflows.

Spot yuan could rise between 6.28 to 6.30 per dollar in coming days after the record high midpoint, dealers said.

Market players said the all-time high midpoint was also influenced by a nearly three-month low dollar index, which hit an intraday low of 78.131.

Uncertainties caused by the euro zone debt crisis and worries over slowing growth in the domestic economy, have turned traders cautious on projections over the yuan's uptrend.

"The dollar gave the central bank a chance to set the historical high mid-point," said a dealer at a European bank in Shanghai. "But we're still cautious about further rises. The market remains quite negative because of the economic date."

Spot yuan traded between 6.2929 and 6.2956, moving below its historical high fixing, reflecting the market's cautious mood. The central bank set the midpoint at 6.2919, higher than Tuesday's 6.2961.

The yuan closed at 6.2936 on the last trading day in February, only 4 pips higher than on Dec. 31 last year.

"Actually, worries over the domestic economy have capped the impact of the record high fixing, so spot has little space to hit a new high and will move on clients' demands in the near term," said a dealer at a Chinese bank in Shenzhen.

In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDFs implied yuan appreciation of 0.19 percent, rising slightly from 0.13 percent they implied at Tuesday's close.