* Midpoint firms slightly after three days of peaks
* Spot market flattens out as customers turn back to dollars
* Yuan finds resistance at 6.25 per dollar – traders
By Pete Sweeney
SHANGHAI, Oct 16 (Reuters) – The yuan edged up on Tuesday in
light trading after three straight days of successive record
highs, as traders said clients grew cautious as the currency
approached 6.25 per dollar.
Before trade began, the central bank set the yuan’s midpoint
slightly firmer as market players began to take long positions
on the dollar following the yuan’s recent strength.
The People’s Bank of China (PBOC) once again set a higher
midpoint despite an overnight strengthening in the
dollar index. Spot yuan stood at 6.2650 in early
afternoon trade, up from a close of 6.2707 on Monday.
Market participants say the PBOC usually sets the midpoint
in inverse relation to moves in the dollar index – although some
dealers told Reuters the central bank was moving toward
referencing it against the previous day’s close of the yuan, not
the dollar index, when setting the next day’s midpoint.
Some economists argue that the anomalous midpoint settings
are due to Beijing’s desire to neutralise the yuan exchange
rate’s utility as a debate weapon during the American
presidential campaign.
Critics assert the currency’s value is routinely manipulated
by Beijing to support Chinese exports, and Republican
presidential candidate Mitt Romney has pledged to label China a
currency manipulator – which would automatically trigger
economic sanctions – on his first day in office.
However, traders are divided on whether the Chinese
government’s attitude toward the U.S. election is actually
driving the spot market. Spot yuan prices have been stronger
than the midpoint since mid-September, so if the midpoint is
“guiding” spot prices higher, it is doing so from below.
“I don’t think the U.S. election has much to do with this,”
said a trader at a foreign bank in Shanghai. He said that
positive export figures which exceeded market expectations and
the relatively low returns on dollar deposits should get more
credit for restoring demand for yuan.
Traders also note that the global forex environment has
flip-flopped since the beginning of the year. The Greek debt
crisis caused a flight to dollars in the first half of 2012,
which caused the yuan to weaken, they said. Then the euro
stabilised, and shortly afterward the U.S. embarked on another
round of massive monetary easing, putting downward pressure on
the dollar’s value.
The yuan forward market continued the trend of moving closer
to the spot price as spreads narrowed.
The onshore one-year forward contract changed
hands at 6.4048 on Tuesday, shrinking its spread against the
spot price by over two basis points since Oct. 10.
Offshore one-year non-deliverable forward contracts
have also moved closer to spot levels, indicating
market expectations for future depreciation are moderating.
(Editing by Jacqueline Wong)
