China's yuan edged up against the dollar on Monday after the central bank set stronger guidance via its daily midpoint, snapping 10 weaker fixes in a row. The stronger fix softened traders' bearish views that the yuan was headed to 6.50 per dollar in the short term. The People's Bank of China (PBOC) set the yuan/dollar midpoint rate at 6.4753 per dollar prior to market open, 0.09 percent firmer than the previous fix 6.4814.
The spot market opened at 6.4771 per dollar and was changing hands at 6.4807 at midday, 0.01 percent firmer than the previous close. "Trading appeared to be subdued with market players' anticipating central bank intervention as the spread between onshore and offshore markets was pretty large," said a trader at a foreign bank in Shanghai."Now I doubt whether the (onshore) yuan could hit 6.50 in the short term." She added that the yuan was also helped by a slightly weaker dollar amid lacklustre global trading as markets head into a shortened Christmas week. The yuan slumped 0.4 percent against the dollar last week, which was the seventh straight weekly slide, the longest weekly losing streak since late 1995. Amid the yuan's weakening streak then, some traders felt the PBOC was prepared to let the currency ease to 6.50 per dollar before the year-end.
The offshore yuan was trading 708 pips, or 1.08 percent weaker than the onshore spot at 6.5515 per dollar. Traders said they expect intervention from the central bank if the spread between the two markets widens to 1,000 pips. On Monday, onshore yuan was trading against the euro at 7.0406, 0.4 percent firmer than the previous close. It weakened 0.5 percent against the Japanese yen , to 5.3463 to 100 yen.
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