The yuan closed nearly flat against the dollar on Friday after the Chinese central bank fixed its daily reference rate almost unchanged, again signalling its desire to keep the yuan stable against the US currency for now. Before trade began, the central bank set the yuan's mid-point against the dollar at 6.8383, up only marginally from 6.8392 on Thursday.
Spot yuan closed at 6.8374 against Thursday's finish of 6.8363. It moved in a narrow range between 6.8285 and 6.8394, and was slightly above the mid-point for most of the day. Offshore, one-year dollar/yuan non-deliverable forwards were little changed at 7.0299 bid late on Friday from Thursday's close of 7.0310, implying yuan depreciation over the next 12 months from the day's spot mid-point of 2.73 percent, unchanged from the level implied on Thursday.
Over the past month, the central bank has kept the dollar/yuan reference rate in a very tight range of 6.8322 to 6.8399, and there has been no major change in the spot rate since last July. Dealers said this could continue for weeks or months as the central bank sought to avoid both yuan depreciation that could prompt capital outflows from China, and appreciation that might pressure the Chinese export sector.
The stock market and bond yields jumped this week after stronger-than-expected December money supply and loan data fuelled talk that economic growth might start recovering in the second quarter of this year.
But there will have to be much stronger signs of recovery before the central bank even considers letting the yuan appreciate, traders believe. Data from the Bank for International Settlements (BIS), published late on Thursday, suggested that as the Chinese central bank keeps the yuan stable against the dollar, it is willing to see major fluctuations against other currencies.
The yuan's nominal effective exchange rate (NEER), its value against a basket weighted by China's foreign trade, fell 2.46 percent in December, the first fall since June and compared to a 1.98 percent rise in November.
Its real effective exchange rate (REER), adjusted for inflation in China and its trading partners, was down 1.69 percent in December against a rise of 0.90 percent in November. "As the central bank keeps the yuan stable against the dollar, the yuan's value against other currencies is moving passively - appreciation or depreciation are both possible now," said a dealer at a major European bank in Shanghai.
For 2008, the yuan's NEER jumped 12.88 percent, compared with a rise of 1.69 percent in 2007 and a fall of 1.55 percent in 2006. Its REER rose 12.66 percent in 2008 compared with a rise of 4.87 percent in 2007 and a fall of 0.86 percent in 2006.