Spot yuan ended down against the dollar despite China's central bank setting the mid-point at a nearly 4-month high as institutions bought dollars, preparing to shut early ahead of National Day rehearsals in Beijing. Dealers said businesses had shut early for the parade rehearsals on Friday afternoon. China is preparing to celebrate the 60th anniversary of Communist Party rule on October 1.
Before trade began, the People's Bank of China set the yuan's daily mid-point at 6.8271 versus the dollar, the reference rate's highest level since May 25 and up marginally from Thursday's 6.8272. Spot yuan closed at 6.8279, lower than Thursday's close of 6.8265.
"Today's fall is because of the rehearsal and a rise in demand for dollars, pushing the yuan lower," said a dealer at a European bank in Shanghai. The dollar index rose to 76.567 in early European trade, near a one-year low of 76.010. The index has shed more than 2 percent this month.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) rose slightly to 6.7360 bid at midday on Friday, compared with Thursday's close of 6.7330. Twelve-month yuan appreciation implied by NDFs, which moves inversely with the forwards, fell slightly to 1.35 percent measured from the Chinese central bank's daily mid-point, compared with 1.40 percent implied at Thursday's close. The NDFs' implied yuan appreciation has dropped sharply from a multi-month high around 2.5 percent in early June, hit by increasing signs that China is not likely to allow its currency to appreciate as uncertainties cloud its economic recovery.