China's yuan closed lower against the dollar on Friday and was much weaker than the central bank's daily reference rate, or mid-point, amid market jitters over the Chinese currency's long-term trend. Worried about possible capital outflows due to declines in China's asset prices, including a 70 percent plunge in its share market over the past year.
The central bank has used its mid-point system to help maintain yuan stability since mid-July, when the dollar began a strong rally globally. The central bank set the yuan's daily mid-point against the dollar at 6.8258 before trading started on Friday, firmer than Thursday's reference rate of 6.8270.
"Friday's mid-point indicated once again the central bank's determination to keep the yuan stable," said a dealer at a European bank in Shanghai. "But a generally strengthening trend in the dollar on the global markets over the past several months has made our clients more willing to retain dollars on hand," he said. "This has shifted the balance of supply and demand in favour of the dollar against the yuan on the domestic foreign exchange market, keeping the yuan mostly weaker than the mid-point these days," he said.
Spot yuan closed at 6.8395 against the dollar, weaker against Thursday's close of 6.8380, and compared with its trading range of 6.8309 to 6.8455 on Friday. Offshore, one-year dollar/yuan NDFs rose to 6.9995 in late trade on Friday from 6.9560 at Thursday's close.
The NDFs' latest level implied yuan depreciation of 2.54 percent against the dollar over the next 12 months from the day's spot mid-point, compared with 1.89 percent implied on Thursday. The NDFs began to imply 12-month yuan depreciation for the first time in five years on September 16, as China's slowing economy clouded the yuan's long-term prospects. Implied 12-month yuan depreciation hit an intraday peak of 5.47 percent on Monday, the highest in at least five years.