The yuan closed a touch higher against the dollar on Tuesday after the People's Bank of China fixed its daily mid-point marginally weaker, in a move traders said signalled that the central bank wants a temporary pause in the yuan's recent strength.
The PBOC-engineered pause appeared to reflect caution not to attract attention to the Chinese currency ahead of a G20 seminar in the eastern Chinese city of Nanjing later this week about reform of the international monetary system.
The yuan finished at 6.5610 versus the dollar compared with Monday's close of 6.5645. It has now risen 4.05 percent since it was depegged in June 2010, and 0.44 percent so far this year. Before trading began, the PBOC fixed the yuan's mid-point at 6.5625, marginally weaker than Monday's 6.5618. The pause came after the central bank set a record high fixing of 6.5580 last Friday.
The PBOC has fixed a slew of record high mid-points since the start of this year, indicating the government may be allowing the yuan's exchange rate to appreciate to help fight inflation, partly propelled by high global commodity prices. In letting the currency rise, however, the PBOC has adopted a tactic of taking two steps forward, one step back, partly to frustrate speculators.
In a sign of that cautious approach, China has tried to distance itself from the G20 Nanjing seminar, saying that the French are the organisers and that it is a Chinese think tank, not the government, that is responsible for the Chinese side of the planning. Offshore, benchmark one-year dollar/yuan non-deliverable forwards were bid at 6.4440 in late trade, little changed from 6.4460 at Monday's close. Their implied yuan appreciation in a year's time inched higher to 1.84 percent from 1.81 percent.