China's yuan ended down versus the dollar on Friday because of a relatively strong overseas performance of the US currency, as well as onshore demand for dollars before the latest hike in bank reserve ratios.
The yuan closed at 6.9935, down from Thursday's finish of 6.9838, after the Chinese central bank set a lower mid-point for the yuan before the market opened. On Thursday, the yuan hit a post-revaluation high of 6.9834. The reserve ratio hike, announced on Wednesday, will take effect next Friday. The central bank has been requiring many large banks to settle reserve hikes in dollars instead of yuan, temporarily boosting demand.
"The yuan's fall was partly because of the upcoming reserve ratio increase. And it's also because today is Friday - many private enterprises tend to buy dollars ahead of the weekend for business purposes," said a dealer at a foreign bank in Shanghai.
A dealer at a major state-run Chinese bank in Shanghai described the yuan's fall on Friday as a technical correction, and said the Chinese currency would probably resume rising soon after the reserve hike was settled. Technically, the yuan has good support around 7.00, which was resistance in late March and early April, so it may continue to hold that level.
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