The yuan closed at a record high on Tuesday after a day marked by light trade and low volatility, but traders said bargain-shopping for dollars by metals and oil companies is set to put the brakes on further yuan appreciation.
Spot yuan closed at 6.2640 against the dollar, up slightly from Monday but still lower than the record intra-day high of 6.2580 the currency hit on that day - the strongest the yuan has traded against the dollar since China established the domestic currency market in 1994.
The yuan began rocketing upward in late September, testing new highs against the dollar on multiple days, as global forex markets digested news the United States will begin injecting $40 billion a month into the economy, effectively putting sustained downward pressure on the traded value of the dollar. The People's Bank of China (PBOC) for a while refrained from letting the midpoint follow spot prices, causing spreads between spot prices and the fix to widen rapidly until October 11, when the central bank embarked on a series of aggressive fixings that narrowed the gap significantly.
The yuan forward market continued the trend of moving closer to the spot price as spreads narrowed. The onshore one-year forward contract changed hands at 6.4048 on Tuesday, shrinking its spread against the spot price by over two basis points since October 10.