The yuan closed lower against the dollar on Friday, with traders wary of reading too much into a decision by the People's Bank of China to set a record high midpoint for the currency. Traders said the PBOC move was a goodwill gesture ahead of a meeting between Chinese President Hu Jintao and his US counterpart, Barack Obama, on the sidelines of a nuclear summit in Seoul on Monday.
It also reflected the central bank's tactics since the start of March to let the yuan move in a wider range against the dollar to create two-way trading for the currency. Spot yuan closed at 6.3078 versus the dollar, down from Thursday's close of 6.2997, and failed to breach its record trading high of 6.2884 hit on February 10.
Before trading began, the central bank fixed its mid-point at 6.2891 compared with 6.3004 on Thursday. The midpoint is the daily base rate from which dollar/yuan can rise or fall 0.5 percent in a day, used by the PBOC to help express the government's intentions for the currency's value.
In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDFs implied yuan depreciation of 0.55 percent in afternoon trade, narrowing from a 0.69 percent rise they implied at Thursday's close. China recorded a rare trade deficit in January-February, easing pressure on the yuan to appreciate. "The market is quite suspicious of the possibility of another round of yuan appreciation," said a trader at a major Chinese commercial bank in Shenzhen. "In addition, trading appears to be quite thin today as many traders are participating in a traders' meeting held in Shenzhen."
In the first half of March, the PBOC let the yuan weaken by 0.7 percent against the dollar at its midpoint, the fixing's biggest 11-session loss since the establishment of the China Foreign Exchange Trade System. Over the next six sessions up to Friday, it let the yuan rise 0.74 percent in the fixing, the mid-point's biggest six-session rise since August last year. China is facing an uncertain global market environment this year, mainly caused by the eurozone's debt crisis, while its own economy is also showing signs of cooling.