The yuan closed moderately higher on Tuesday after an afternoon fall in the dollar sparked a yuan rally, and traders say customer flow is becoming more balanced after months of excess dollar buying. The yuan closed at 6.3586 per dollar, 30 pips stronger than Monday's close, after the central bank set its daily reference rate at 6.3443, 13 pips stronger than Monday's fix.
The yuan was flat at midday but rallied in the afternoon, mirroring a fall in the dollar index. "Dollar selling was fairly heavy today, but nothing out of the ordinary," said a trader at a major state-owned bank in Beijing. Following several months in which dollar buying vastly outpaced dollar selling in China's interbank market, traders now say that order flow is becoming more balanced.
The yuan touched a year low of 6.3967 on July 25 and has strengthened steadily since then, mirroring a mild retreat in the dollar globally. Traders are in wait-and-see mode and loath to predict near-term movements in the currency. Onshore Chinese FX deposits increased 60 percent between October 2011 and June 2012, Ethan Mou, rates strategist at Bank of America-Merrill Lynch, wrote in a note to clients on Monday. In the offshore market on Tuesday, one-year non-deliverable forwards were bid at 6.4215 in late afternoon, implying 1.0 percent depreciation over the next 12 months, in line with Monday's close.