SHANGHAI: China's yuan closed up against the dollar on Wednesday following a stronger fixing by the central bank, trading close to its midpoint but breaking out of a narrow range seen since Friday.
The midpoint was set higher after the dollar index declined in overnight trading as results at debt auctions in Europe encouraged investors to begin looking for higher returns there.
Spot yuan closed the day at 6.3041 per dollar, 32 pips stronger than Tuesday's close, but remaining weaker than the official midpoint of 6.2923 throughout the day, a continuation of the currency's tendency to open and trade below the central bank's guidance established in mid-March.
The yuan remained near its opening price through the morning, dipped briefly in the afternoon, but at all times stayed outside the tight 6.3065 to 6.3097 range it had been treading since Friday.
The yuan's spot price remained within 0.2 percent of the midpoint, as it has done since the trading band was widened to 1 percent from 0.5 percent on April 16.
A trader at a foreign bank in Shanghai said most market players are content to follow the midpoint as they believe a level around 6.3 yuan to the dollar is reasonable and that any strong appreciation is unlikely.
Another trader said the yuan's relatively restrained movements are less due to market consensus and more a result of the trading dominance of China's big state-owned banks, which are risk-averse and thus prefer to stay close to the midpoint. "The banks don't know how to price the yuan," he said.
One year non-deliverable forwards (NDFs) on the yuan did not firm alongside spot yuan in the morning and moved slightly further away from the yuan over the course of the day, weakening by 35 pips to end near 6.3505 per dollar at the close of onshore trading.
Prices for offshore yuan continued to track onshore values closely, last trading at 6.3070 per dollar.
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 up to an all-time high of 6.2840 on March 27.