* Yuan slips on stronger overnight dollar
* Little impact from widening of trading band
* Range trade of 6.29 to 6.32 appears entrenched
* Spot still trading weaker than c.bank midpoint
By Gabriel Wildau
SHANGHAI, April 19 (Reuters) – 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.
(Editing by Richard Pullin)
