The yuan was little changed against the dollar on Wednesday after the Chinese central bank set its daily yuan mid-point only marginally lower, despite the US currency's recent strength in global markets. Traders said that just as the central bank used the mid-point system to prevent major appreciation of the yuan during the dollar's global plunge in mid-December. It was now expected to prevent any significant drop of the yuan.
"The yuan has been moving sideways against the dollar since July 2008. I don't expect any big changes in coming weeks, even months," said a trader with a European bank in Shanghai. In a sign that Chinese exports face further pressure, Taiwan announced late in the day that its own exports plunged a record 42 percent from a year earlier in December, far worse than economists' predictions of a 26 percent drop China's December export data will be released in mid-January.
But China's State Administration of Foreign Exchange said late on Tuesday that it would strengthen risk management of foreign exchange reserves and step up monitoring of international capital flows. This suggested authorities remained keen to prevent weakness in China's economy and asset markets from triggering major capital outflows - a strong motive for the central bank to support the yuan, traders believe.
The central bank set the yuan's mid-point against the dollar on Monday at 6.8389, down only marginally from Tuesday's 6.8384. The move was much smaller than the 0.44 percent rise of the US Dollar Index on Tuesday. The yuan traded modestly above its mid-point throughout the day and closed at 6.8340, up marginally from Tuesday's finish of 6.8360.
One-year dollar/yuan non-deliverable forwards fluctuated in a range of 6.9600-7.0812 bid, implying yuan depreciation over the next 12 months from the day's spot mid-point of between 1.74 and 3.42 percent.