The yuan fell sharply against the dollar in the offshore non-deliverable forwards market for a third straight day on Tuesday as traders slashed their expectations for long-term yuan appreciation.
The US currency's global strength, and statements by China's leadership over the past ten days suggesting a shift of economic policy towards sustaining growth from fighting inflation, have convinced many traders that one-way yuan appreciation is unlikely to continue into 2009. One-year dollar/yuan NDFs surged as high as 6.6350 in late trade from Monday's finish of 6.5880.
Their high implied yuan appreciation against the dollar from the day's mid-point over the next 12 months of just 3.24 percent, the lowest level this year. That was down sharply from 3.93 percent implied at the close on Monday.
One-year NDFs face strong technical resistance at 6.66, their May and June peaks. But with China's economy slowing and the dollar possibly starting an extended rebound against many major currencies, traders no longer believe Chinese authorities will necessarily remain committed to yuan appreciation over the long term. Before trade began, the Chinese central bank set spot yuan's daily mid-point against the dollar lower for a fifth straight day, at 6.8501 against Monday's 6.8471.
The mid-point was in line with global dollar strength overnight, and it was above Monday's spot finish of 6.8515, which may have been a signal that the central bank did not want the yuan to enter a strong downtrend in the short term.