China's yuan ends up on Tuesday as the People's Bank of China set only a slightly higher mid-point in the wake of a fall in the dollar index, showing no signs it would let the Chinese currency strengthen much for now. The premium enjoyed by offshore yuan in Hong Kong against onshore yuan was only 10 pips.
But the spread has narrowed from a peak of 1,790 pips hit in mid-October, as the offshore market meshed its view with the onshore market - that the yuan would remain stable in the near term. Spot yuan ended at 6.6589 versus the dollar, rising from Monday's close of 6.6745. It has risen 2.51 percent since the PBOC announced a depegging in mid-June.
Dealers widely expect the yuan will remain stable for the rest of this year and will move in a narrow range of about 200 pips around 6.6500 in coming weeks. But they see the currency potentially appreciating 3 to 5 percent next year on a combination of political pressure and China needing to consider its own economic situation, such as high imported inflation. Offshore, one-year NDFs were bid at 6.5280 late on Tuesday, down slightly from Monday's close of 6.5400. Their implied yuan appreciation in a year's time rose to 2.02 percent from 1.83 percent.