SHANGHAI: China's yuan steadied against the dollar on Wednesday after the central bank set the daily guidance rate near unchanged, with traders saying dollar supply and demand were roughly in balance.
The People's Bank of China (PBOC) set the midpoint rate at 6.1173 per dollar prior to market open, only 0.01 percent firmer than the previous fix at 6.1179.
The spot market opened at 6.2053 per dollar and was changing hands at 6.2058 at midday, unchanged from the previous close.
"The market is roughly in balance today, probably indicating investors are uncertain about the yuan's future movement," said a trader at a Chinese city commercial bank in Shanghai.
Offshore yuan was trading 0.10 percent weaker than the onshore spot rate at 6.2118 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.2465, 2.07 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 percent in either direction, corporates are much warier of using the NDF to hedge given the basis risk inherent in them.
As a result the market has lost liquidity in recent years and has frequently proven an unreliable measure of market sentiment.
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