China's yuan dipped on Wednesday as dollar demand slightly outweighed supply after the central bank set the official guidance rate weaker, traders said. The World Bank warned on Wednesday that capital outflows from China had increased sharply in recent months, but its comments had no immediate impact on trading, traders said.
The People's Bank of China (PBOC) set the midpoint rate at 6.1149 per dollar prior to the market opening, 0.02 percent weaker than the previous fix at 6.1136. The spot market opened at 6.2020 per dollar and the yuan was changing hands at 6.2018 at midday, down 0.01 percent from the previous close.
"Due to the central bank's intention to keep the yuan steady, the market has lost direction," said a trader at an Asian bank in Shanghai. "This has dampened trading enthusiasm." The yuan has been trading narrowly between 6.18 and 6.22 since mid-March as government officials have pledged to maintain the stability of the currency amid an economic slowdown.
The offshore yuan was trading 0.05 percent weaker than the onshore spot rate at 6.2046 per dollar. Data from the foreign exchange regulator showed a deficit of $17.9 billion on the capital account in the first quarter of 2015. The pick-up in capital outflows has put the yuan under downward pressure, traders said. Large state-owned banks are suspected of having stepped into the market to sell dollars on behalf of the monetary authorities to ensure the yuan's weakness does not trigger even larger outflows in the past few months, traders said. "A steady yuan may be the best solution to stop capital outflows from turning into flight for now," said a trader at a large stated-owned bank in Shanghai.
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