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Yuan edges down on softer midpoint, but PBOC keeps tight leash
[SHANGHAI] China's yuan eased against the dollar on Wednesday after the central bank fixed a softer midpoint, but authorities continued to focus on stabilising the currency through state banks' buying activity.
The People's Bank of China (PBOC) set the midpoint rate at 6.5302 per US dollar prior to market open, 0.04 per cent weaker than the previous fix at 6.5273.
The spot market opened at 6.5303 per US dollar and was changing hands at 6.5307 at midday, softening 0.07 per cent from the previous close and just 5 pips lower from the midpoint.
"It could easily go back to 6.57, the level before the Spring Festival, but the central bank has been holding firm even in today's calm market," said a dealer at an European bank, referring to purchasing of the yuan by state-owned banks.
The PBOC usually intervenes in the market via state-owned banks.
The yuan continues to face depreciation pressure due to a slowing economy, and uncertainty over Beijing's intentions after it let the currency fall in recent months, but market sentiment has improved since January, traders said.
In January, hedge funds ramped up bets on a sharp devaluation of China's yuan with the bias towards yuan falls in options markets hitting its highest on record.
But a survey of 20 fund managers, currency traders and analysts conducted by Reuters last week showed bearish bets on the yuan fell to their lowest since late November.
Data from the foreign exchange regulator showed on Tuesday that Chinese commercial banks' net sales of foreign exchange fell to US$54.4 billion in January from US$89.4 billion in December, indicating less capital outflows from the banking sector.
Foreign exchange reserves in China declined US$99.5 billion in January to US$3.23 trillion, following a record fall the previous month, as the central bank sold dollars to defend the yuan. The reserves have shrunk by US$762 billion since mid-2014, more than the gross domestic product of Switzerland.
China still owns the world's largest currency reserves, but it has been burning through them at a pace that some think Beijing might soon have to allow a sharp fall in the yuan or back-pedal on liberalisation and tighten its capital controls.
The offshore yuan was trading 0.09 per cent weaker than the onshore spot at 6.5364 per US dollar.
The onshore yuan softened 0.2 per cent against the euro by midday at 7.1998. It also eased 0.3 per cent against the Japanese yen, hovering at 5.8400 to 100 yen.