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Yuan falls vs dollar but trades above c.bank fixing

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littlekracker



Yuan falls vs dollar but trades above c.bank fixing
Published: Tuesday, 13 Jul 2010 | 1:23 AM ET



By Lu Jianxin and Jacqueline Wong SHANGHAI, July 13 (Reuters) - Spot yuan fell against the dollar on Tuesday after the People's Bank of China set a surprisingly low mid-point, a move that market players believed was aimed at generating more active two-way trade. The fixing helped push dollar/yuan offshore forwards up, which typically implies less yuan appreciation, but because of the sharply weaker mid-point, forwards' implied yuan appreciation hardly budged. The dollar's strength in global markets gave the PBOC a chance to weaken its reference rate, but an abundance of dollars on the spot market kept the yuan above the fixing -- from where the currency can rise or fall 0.5 percent in a day. Three weeks after the PBOC announced a depegging of the yuan to the dollar in mid-June, the Chinese currency has risen 0.75 percent against the dollar, off a high of 0.87 percent. The PBOC appears to be adopting a tactic of two steps forward, one step backwards to allow the yuan to appreciate at a measured pace, dealers said. But a consistently wider trading range has made Chinese corporations get used to greater two-way action in the currency. And as the yuan is now allowed to move in a range of more than 100 pips per day, short-term exchange rate risks have largely been factored into transaction prices, they said. "Market confidence in longer-term yuan appreciation has not been shaken by Tuesday's fixing, in particular after China posted strong trade data over the weekend," said a dealer at major European bank in Shanghai. "There was more dollar selling than buying today, keeping the yuan above the mid-point." China posted on Saturday forecast-beating, record monthly exports in June, which some analysts believe will add pressure on Beijing to allow the yuan to inch higher. On Tuesday, the PBOC set the yuan's mid-point at 6.7802, down from Monday's 6.7718, which was the fixing's highest level since a landmark 2005 yuan revaluation. Spot yuan was trading at 6.7755 to the dollar at midday, down slightly from Monday's close of 6.7711. Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) rose to 6.6650 bid from Monday's close of 6.6560, with implied 12-month yuan appreciation little changed at 1.73 percent from 1.74 percent.

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