The yuan closed moderately higher against the dollar on Wednesday but it remained below the central bank's reference rate after China announced slower growth in its September money supply and foreign exchange reserves. "Our bank saw a sudden emergence of dollar demand from our corporate clients in late trade yesterday, which ran into early trade today," said a dealer at a major state-owned bank in Shanghai.
"It's now clear that yesterday's announcement of slowing growth in money supply and forex reserves has caused worries over the possibility of long-term yuan depreciation, making some clients more willing to keep dollars on hand."
China's broad M2 money supply grew at its slowest pace in more than three years and forex reserves also expanded at a slower pace in September, according to official data published on Tuesday. Before trade began on Wednesday, the central bank fixed the yuan's daily mid-point against the dollar at 6.8272, up marginally from Tuesday's reference rate of 6.8278. It has been using its mid-points in recent weeks to keep the yuan stable in a range of roughly 6.82 to 6.85.
The yuan hit an intraday low of 6.8491 in early trade before recovering to close at 6.8320, up from Tuesday's close of 6.8390. Its session high of 6.8284 was still below the mid-point.
Offshore, one-year dollar/yuan non-deliverable forwards rose slightly to 6.9000 bid from 6.8800 at the close on Tuesday. The NDFs' latest level implied yuan depreciation of 1.07 percent against the dollar over the next 12 months from Wednesday's spot mid-point, up from 0.76 percent implied on Tuesday but below a multi-year high of 4.18 percent implied last week. Offshore one-year dollar/yuan volatilities rose to 11.10 percent bid from Tuesday's close of 10.50 percent, holding near last week's multiyear high of 12.50 percent as the market remains divided over the long-term trend for the Chinese currency against its US counterpart.