SHANGHAI: The yuan rose slightly against the dollar on Wednesday after the People's Bank of China set a stronger mid-point, with a pullback in the dollar index dampening expectations of yuan depreciation.
The Chinese authorities have been trying to cool depreciation speculation over the yuan as investors cut risk on emerging assets and the country's export momentum slows. Signs of capital outflow from the world's second-largest economy have also emerged as the European debt crisis deepens.
The dollar index fell below 80 against a basket of currencies on Tuesday as an unexpectedly strong Spanish debt auction as well as upbeat German and US data sparked a relief rally, though the mood remained brittle.
"The dollar index's pullback decreases the pressure of yuan depreciation, so today's trade is quite normal," said a dealer at a Chinese bank in Shanghai.
Dealers said the yuan could move in a small range of 6.33 to 6.35 per dollar for the rest of year as the central bank has shown strong intentions to keep the yuan stable.
Traders believe the PBOC started to intervene in the currency market since last week to support the yuan.
The PBOC has been trying to keep the yuan stable by setting higher mid-points when the yuan repeatedly hits the lower end of its daily trading limit. The yuan is permitted to fluctuate within 0.5 percent of either side of the mid-point in a day.
Spot yuan was at 6.3427 against the dollar, up slightly from 6.3472 on Tuesday.
The yuan has still risen 3.89 percent so far this year and 7.62 percent since it was depegged in June 2010.
Before trading began, the PBOC fixed the day's mid-point at 6.3248, slightly lower than Tuesday's 6.3351. The central bank uses the fixing to express the government's intention for the yuan's daily movement.
Benchmark offshore one-year dollar/yuan non-deliverable forwards (NDFs) have largely been forecasting yuan depreciation in a year's time since late September, reversing a trend of appreciation since the yuan's revaluation in July 2005.
One-year NDFs were bid at 6.3795 against the previous close of 6.3830, implying that the yuan would depreciate 0.86 percent in 12 months from the PBOC's mid-point, compared with a 0.92 percent fall implied on Tuesday.
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