THE yuan flatlined Friday, with the exchange rate barely budging and volumes low, as traders said a combination of soothing messages from regulators and buy orders from banks kept the market in check.
The spot market opened at 6.3990 per U.S. dollar and changed hands at 6.3918 at market close, only 72 pips from the previous close and 0.09 percent away from the midpoint.
For the entire day, the yuan was in a tight range between 6.4050 and 6.3990.
“After a few days of volatility, the central bank appeared to want the yuan to show some stability for now, possibly also next week,” said a trader at a major European bank in Shanghai on Friday.
For the week, the currency posted a record loss of around 3 percent.
On Tuesday, the People’s Bank of China shocked global markets by guiding its daily midpoint setting down nearly 2 percent, the sharpest such adjustment in China’s modern foreign exchange market.
The move, explained as a re-pegging of the midpoint fixing closer to the market rate, led the currency to fall around 3 percent in massive volumes. Official data showed spot volume of nearly US$57 billion, the biggest day in records kept since May 2013.
Volumes have come down sharply and the domestic market has stabilized after the central bank said Thursday there was no reason for the yuan to fall further given China’s strong economic fundamentals.
Volatility vanished from the spot market Friday. Prior to Tuesday, when the central bank said it aimed to introduce more two-way trade into the market, the exchange rate had for months also moved within a narrow 0.3 percent range, which traders blamed on intervention by domestic banks to prop up the yuan.
The cost of that intervention now appears to be quite high, which may explain the sudden depreciation.
On Friday afternoon, government data showed the central bank and commercial banks together sold US$38.9 billion in foreign exchange in July, the biggest sales on record. (SD-Agencies)
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