China's yuan slid against the US dollar on Thursday in volatile trade as it consolidated after steady appreciation earlier in the week, although dealers expected it to resume its uptrend against the dollar in the near term.
The yuan closed at 7.6487 to the dollar, compared with 7.6358 at Wednesday's close, after hitting an intraday low of 7.6560 - the lowest in more than a week. "To me, because there are no major fluctuations in the US dollar in the overseas currency market today, the yuan retreat can be regarded as a technical correction following its steady gains this week," said a dealer at a foreign bank in Shanghai.
Dealers also said the correction reflected the Chinese government's unwillingness to see its currency rise too quickly. "The yuan has risen quite fast against the US dollar recently. I think the central bank was behind the yuan's fall today," said a dealer at a Chinese bank.
Dealers also said they could not rule out the possibility that some overseas investors were pulling out of the A-share market following its recent sharp falls and trying to shift their money abroad, leading to increased purchases of the dollar.
A currency trader at a state bank attributed the yuan correction to dollar demand from some individual clients, but he declined to elaborate. Dealers said the yuan was still set, however, to appreciate further in the long term. The dealer at the Chinese bank said he expected the yuan to test the 7.63 level next week.
The yuan rose steadily against the dollar earlier this week, partly reflecting the euro's strength. The Chinese currency has appreciated more than 6 percent since it was revalued by 2.1 percent to 8.11 per dollar on July 21, 2005.
The central bank set its mid-point for the yuan's rate against the dollar at 7.6502 on Thursday, down from 7.6398 the previous day, setting the stage for the currency's decline. The yuan may rise or fall 0.5 percent from its mid-point each day, but it has moved only a small fraction of its band in most trading sessions since the floating rate regime was introduced in 2005.