Hong Kong: China`s yuan edged up against the dollar on Wednesday following a stronger midpoint set by the central bank, but looked set to post its first significant yearly loss since its landmark revaluation in 2005.
The People`s Bank of China (PBOC) fixed the official midpoint at 6.1190 per dollar, 0.06 percent higher than Tuesday`s 6.1224.
Spot yuan changed hands at 6.1990 near midday, up 0.05 percent from the pervious day`s close at 6.2020. It briefly touched 6.1908 in morning trade, the highest level since Dec 25.
Traders said the new rules on the management of banks` foreign currency net opening positions (NOP) released by the State Administration of Foreign Exchange (SAFE) on Tuesday supported the yuan.
China will relax restrictions on banks` yuan trading from Jan 1, replacing daily caps on banks` foreign exchange positions with weekly limits, leaving them leeway to short dollars within that period.
"The fact that some banks will be exempted from being forced to keep minimum long dollar position may alleviate pressure on RMB depreciation. As such, we think the upside for USD/CNY will be capped in the near term," said Xie Dongming, an economist at OCBC Bank in Singapore.
The Chinese currency fell sharply early this year in what was widely seen as an engineered move by the central bank to crack down on speculators betting on one-way appreciation.
It regained some ground later in the year, but tumbled again after the central bank surprised markets but cutting the benchmark interest rate in November to shore up the slowing economy. Further policy easing is expected in coming months, which will keep downward pressure on the yuan.
A series of weak economic indicators have added to the bearish sentiment toward the currency. Activity in China`s factory sector shrank for the first time in seven months in December, a private survey showed on Wednesday.
The final HSBC/Markit Purchasing Managers` Index (PMI) for December came in at 49.6, just below the 50.0 level that separates growth from contraction.
The yuan is poised to end the year down 2.4 percent, its first meaningful annual depreciation since 2005. It had dipped fractionally in 2009.
By comparison, the currency gained 2.8 percent in 2013.
The spot rate is currently allowed to trade 2 percent above or below the midpoint. It traded 1.3 percent lower than the midpoint in morning trade.
