China's yuan rose moderately against the dollar on Monday as the central bank kept the Chinese currency's daily reference rate unchanged, despite a further weakening of the dollar on global markets.
Before trading began, the Chinese central bank set the yuan's mid-point at 7.1058 to the dollar, unchanged from Friday, despite continued weakness in the US Dollar Index, which hit a new low. The yuan spent most of the day trading below the mid-point, though a rise in the last two hours of trade took it to a close of 7.1041 versus the dollar, up moderately from its previous close of 7.1115 and not far below its post-revaluation, intra-day high of 7.1030, hit late on Friday.
Traders said the weaker-than-expected mid-point set by the cental bank on the first trading day of March appeared to indicate an intention to keep the yuan's appreciation at a more moderate pace for the month, after last month's rapid pace.
On Friday, the yuan hit a post-revaluation high against the dollar for the third straight day, after posting a 0.40 percent rise on Thursday, its biggest daily gain since its July 2005 revaluation.
"We have seen the central bank continuing to set the yuan's reference rate at record highs in past weeks, which led to very fast appreciation of the currency," said a trader with a major American bank.
"By setting the fixing at a relatively moderate level today, the central bank is sending out a signal that it wants to see a milder rise of the currency this month." The yuan traded almost entirely below its mid-point on Monday morning, indicating the market was taking its cue from the central bank, other traders said.
The central bank set the yuan's mid-point against the euro lower yet again on Monday, at a six-week low of 10.8108 against Friday's 10.7809. That suggested it does not want the yuan to come close to matching the pace of the euro's rise against the dollar for now.
In the offshore non-deliverable forwards market, one-year dollar/yuan NDFs were at 6.4425/75 on Monday, compared with 6.4720/70 late on Friday. Their latest levels implied yuan appreciation of 10.21-10.30 percent in a year's time from Monday's mid-point, against 9.71-9.79 percent implied late on Friday.