China's yuan fell against the dollar on Wednesday as the US currency gained on global markets after the Federal Reserve held rates steady but left the door open for more rate hikes.
The yuan closed at 7.9772 against Tuesday's close of 7.9732. Before trade began, the central bank set a mid-point of 7.9775, down from the previous day's mid-point of 7.9740.
"It was a surprise to the Asian market that after the Fed decided to leave interest rates unchanged this time, the dollar actually gained against major Asian currencies," said a dealer at a European bank in Shanghai. "Also, the central bank set today's mid-point lower, which perhaps means that the Chinese authorities hope the yuan will take a rest after its recent gains," said the dealer.
"There is no major news in the local market, so the dollar overseas was the most important factor affecting today's yuan trade," said another dealer at an Asian bank in Shanghai. "The central bank may have taken this as an excuse to see a lower yuan today."
Traders now see the 7.9650 area, where the yuan hit its post-revaluation peak on July 31, as significant resistance in the short term, though the market agrees the yuan's medium-term trend remains up.
Immediate technical support is seen around 7.9800, the yuan's low last week. The yuan fell very briefly below that level on Wednesday, hitting a low of 7.9805, but quickly recovered. Any sustained break below 7.9800 would be short-term bearish technically for the yuan, triggering a minor "double bottom" on the dollar/yuan chart targeting the 7.9950 area in subsequent days.
The yuan has now appreciated a further 1.66 percent since it was revalued by 2.1 percent to 8.11 per dollar on July 21, 2005, and freed from a dollar peg to float within managed bands.