The spread between key onshore and offshore dollar/yuan forwards dropped to nearly flat on Thursday, indicating some success in the People's Bank of China's efforts to dampen speculation in yuan appreciation. The Chinese central bank had fixed a series of weak yuan mid-points, or daily reference rates, this week.
In a major step to help cool speculative trade in offshore non-deliverable forwards (NDFs) in the long term, China also tweaked rules this week to allow the sale of yuan-denominated financial products in Hong Kong. Since a landmark yuan revaluation in July 2005, China has taken steps to improve the mechanisms for yuan pricing such as by widening the yuan's trading range, but it has resisted pressure from the United States to let the yuan rise sharply.
The PBOC set the yuan's mid-point at a sharply lower 6.7859 against the dollar on Thursday from Wednesday's 6.7802 after the United States renewed pressure for the yuan to appreciate. Guided by the PBOC's fixing, spot yuan closed at 6.7800, down from 6.7769 at Wednesday's close.
One-year NDFs rose to touch a four-week high on Thursday and was at 6.7100 bid in late trade from Wednesday's close of 6.6950, pushing their implied 12-month yuan appreciation down to 1.13 percent from 1.27 percent. One-year onshore forwards were quoted at 6.7120.