China's yuan closed slightly lower against the dollar on Monday in line with the central bank's weaker mid-point fixing, and the currency is expected to move mainly in a virtual peg of 6.30 to 6.40 to the dollar in coming weeks. The government is forecasting a sharp slowdown in the growth of its foreign trade in 2012, but is also predicting a steep fall in capital inflows for the year - a sign that could see the yuan at status quo to balance the conflicting factors.
"It seems unlikely that China will let the yuan appreciate much until the eurozone debt crisis is largely over," said a dealer at an Asian bank in Shanghai. Spot yuan closed at 6.3165 to the dollar, slightly weaker than Friday's close of 6.3066. The currency has dropped 0.36 percent so far this year as the People's Bank of China fixed a slew of weaker mid-points after letting it hit a record trading high of 6.2919 at the start of this year.
On Monday, the PBOC set its fixing at 6.3306 against Friday's 6.3201, with traders saying the dollar's recent global strength offered the Chinese central bank an easy excuse to pull the yuan back slightly. In the offshore non-deliverable market, one-year forwards traded at 6.3070 in the afternoon. The rate implied 0.37 percent appreciation over the next year against Monday's PBOC mid-point.