SHANGHAI, Apr 24: China’s yuan was little changed near midday on Wednesday, with traders saying the pace of appreciation is likely to slow over the next month as the market consolidates recent gains.
Spot yuan was marginally stronger, despite a slightly weaker central bank midpoint. But traders said that a large spate of dollar buying on Tuesday afternoon had pushed the exchange rate weaker, leading to a minor rebound on Wednesday, despite the weaker midpoint.
Traders continue to report that client demand for yuan exceeds dollar demand, but they say the imbalance is smaller than during the first three months of the year, when data showed that clients sold huge amounts of foreign exchange to banks.
After initially dismissing recent remarks by central bank officials indicating plans to widen the yuan’s daily trading band, traders now increasingly say they expect a widening sometime in the coming weeks or months.
They say that officials’ intention to widen the band are a likely explanation for a series of surprisingly strong midpoints earlier this month, which guided the spot rate to a record high of 6.1723 per dollar last Wednesday.
By guiding the yuan stronger in recent weeks in advance of a possible band widening, the authorities may have been trying to release at least some of the appreciation pressure that had built up since late last year.
Under current rules, the People’s Bank of China (PBOC) allows the spot exchange rate to rise or fall by no more than 1 percent from the midpoint the PBOC sets each morning.
The spot rate has consistently hovered near the very top end of the band since late 2012. That means authorities had reason to fear that widening the band without first allowing some appreciation could lead to an abrupt one-off strengthening of the yuan on the day the wider band would take effect.
With the yuan having gained 0.5 percent so far in April, a trader at a large state-owned bank in Beijing said that the pace of appreciation is now likely to slow to about 0.1 to 0.2 percent beyond the current level in the month ahead.
That would place the spot rate at around 6.1683 by late May.
(AGENCIES)
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