Dollar funding costs in China's onshore currency market continued sliding on Wednesday, while the US currency rebounded against the yuan in the forwards markets. Onshore one-year dollar/yuan forwards climbed to 6.5000 in late trade, near a seven-week high and up from Tuesday's close of 6.4888.
They were threatening to break out of the range of roughly 6.35 to 6.50 in which they had remained since early March. Their latest level implied 7.44 percent appreciation of the yuan against the dollar from Wednesday's spot mid-point over the next 12 months, down from implied appreciation of nearly 12 percent in the middle of last month.
"People expect China may slow the pace of yuan appreciation in the second half of this year and even more in 2009," as inflation comes under control and Chinese exports are pressured by a global economic slowdown, said a dealer at a European bank in Shanghai.
In the offshore market, one-year dollar/yuan non-deliverable forwards rose to 6.3530 from Tuesday's close of 6.3440. They have climbed from levels of around 6.28 in the middle of last week.
Their latest level implied yuan appreciation of 9.93 percent in 12 months' time, sharply down from a peak of 13.79 percent in mid-March, which was the highest implied appreciation since the yuan's peg to the dollar was abolished in July 2005.