Chinese yuan ends up

China's yuan closed higher against the dollar on Monday, despite weakness in other Asian currencies, after the central bank fixed a stronger-than-expected yuan mid-point, signalling it did not want the currency to enter a downtrend for now. "Many of our clients retained their dollar positions during the yuan's fall in August," said a dealer at a major Chinese commercial bank in Shenzhen.
"But the central bank's stronger mid-point today, despite global dollar strength, made them more willing to settle their dollar positions, since they now expect the yuan to at least keep stable in the near term, if not rise slightly." Since China's central bank pledged in its monetary report last month to prevent major capital outflows, it has used its mid-point system and suspected indirect intervention to limit the yuan's losses.
Before trade began on Monday, the central bank set the yuan's daily mid-point against the dollar at 6.8320, up from Friday's 6.8345, even though the dollar had actually risen against major currencies since Friday.
Spot yuan moved narrowly around Friday's close of 6.8350 on Monday morning, and then rose in the afternoon to finish at 6.8256 as Chinese exporters sold their dollars. Traders said there was no clear sign of indirect central bank intervention on Monday.
The market believes the central bank does not want any extended yuan downtrend to develop because, with the Chinese stock and property markets weak, a downtrend could prompt the kind of capital outflows seen recently from other Asian countries. At the very least, the central bank is expected to keep the yuan firm against a trade-weighted basket of currencies in coming months, many traders said.
And if the dollar loses steam in global markets, the yuan could easily resume rising against the US currency, perhaps reaching the 6.67 area by year-end, they said. "The government is likely to keep the yuan stable against the dollar around the current level for at least another month before it decides how to adjust its currency policy," said a dealer at a major Chinese state-owned bank in Beijing.
HSBC said in a research report on Monday that among Asian currencies, only the yuan and the Taiwanese dollar were still undervalued. It forecast the yuan would be stable against the dollar in the second half of this year but added that its long-term appreciation trend was unchanged.