SHANGHAI: China's yuan edged down on Thursday, guided by a weaker central bank midpoint, but the currency remained solidly in the range in which it has fluctuated since late March.
Spot yuan fell to 6.3045 per dollar in early afternoon, 17 points weaker than Wednesday's close, after the central bank set a midpoint of 6.3004, 56 pips weaker than Wednesday's fix.
The People's Bank of China (PBOC) followed its usual pattern of setting a weaker fix in response to a rise in the dollar index overnight.
The yuan touched 6.3471, its weakest point of the year, on March 14, after a series of progressively weaker midpoints in early March. The central bank then reversed course, guiding the currency higher over the next week with stronger fixings.
The currency has been range-bound ever since, staying mostly between 6.29 and 6.32. Traders say this range represents a rough consensus on the fair value of the currency.
"Based on the behaviour of the market, we all think (the yuan) is in a reasonable range," said a trader at a joint-stock bank in Shanghai.
The PBOC last Saturday announced a widening of the yuan's trading band from 0.5 percent on either side of the midpoint to 1 percent.
Apart from a short spate of volatility on Monday, however, the market has continued as before, with no significant increase in volatility.
Traders say such stability is likely no accident.
"Both the market and the government believe the current price is close to a balanced level. I think that was a big reason for the timing of the policy announcement," said a trader at an Asian bank in Shanghai.
The yuan on Thursday also extended its run of trading weaker than the midpoint, a trend that began in mid-March.
Traders say this pattern is the result of midpoint fixings slightly stronger than the level the market feels comfortable with. Few believe that the pattern represents genuine depreciation pressure.
One trader said he saw signs of speculative bets on yuan depreciation by domestic investors. While such speculation may have a mild impact, all agree that demand from trading corporates is the dominant force in the market.