Benchmark dollar/yuan non-deliverable forwards (NDFs) fell more than one percent in late trade on Tuesday, the biggest single-day loss in nearly one year as dealers said recent dollar short-covering eased in the forward market while the US currency stabilised.
Dealers also reported a shortage of liquidity in the NDF market as many dealers are already on Christmas holidays. One-year dollar/yuan NDFs dropped as low as 6.6270, down 1.02 percent compared with Monday's close of 6.6950 - the biggest one-day fall in the NDFs since December 29 last year.
Twelve-month yuan appreciation implied by NDFs jumped to 3.04 percent measured from the central bank's daily mid-point of 6.8285, compared with 1.99 percent implied at Monday's close. "A stable dollar in global markets and short liquidity ahead of Christmas made NDF trading volatile today. The movements are, therefore, less significant today compared with normal days," said a dealer at a European bank in Shanghai.