Yuan dips

China's yuan inched lower against the dollar on Friday, pushed down by corporate dollar demand and a slightly lower central bank midpoint, traders said. Spot yuan eased to 6.1203 per dollar by midday, 0.01 percent weaker than Thursday's close. At the midday level, the currency was down 0.1 percent for the week. The People's Bank of China (PBOC) fixed its midpoint at 6.1467, down 0.01 percent from Thursday's fix. The official rate was at a two-week low, reflecting the recent global strength of the US dollar index.
The yuan has rallied since late September, hitting a seven-month high at 6.1172 per dollar on Wednesday. It has been buoyed by China's strong trade surpluses every month since May, which have increased dollar supply in the market. "This round of rally is steady but slow, indicating the market is still divided on the direction of yuan," said a trader at a commercial bank in Shanghai.
For now, however, more investors are inclined to bet on appreciation as the central bank seems to step in to support the yuan, traders said. They believe the yuan is likely to hover around 6.12 in coming weeks, with the potential to rise above 6.10. Traders said corporate dollar demand has been on the rise this year after the yuan depreciated 3.4 percent in the first four months under the central bank's guidance and in line with the recent dollar strength in global markets.
In September, Chinese banks had a deficit of $7.88 billion in foreign exchange settlements for corporate clients, the first time since August 2012 there wasn't a surplus, according to data the State Administration of Foreign Exchange (SAFE) released on Thursday. The PBOC and commercial banks together purchased only $179.73 million worth of foreign exchange on a net basis in September, according to a Reuters calculation.
Both pieces of data contrast with China's big September trade surplus. This indicates companies are keeping more dollars on hand this year than in the past few, when the yuan was seeing one-way appreciation. One likely reason is concern over slowing global growth. While the PBOC is guiding the yuan to stage more two-way trading this year, the central bank is also building mechanisms to eventually foster a more freely traded yuan, traders said. In the latest move, China's forex market will kick off direct trading between the yuan and the Singapore dollar next week.