Yuan slips in light volume; c.bank still seen intervening
SHANGHAI, Dec 14 (Reuters) - China's yuan weakened on Friday with bullish market sentiment curbed by what traders suspected was central bank intervention keeping a lid on volumes and volatility.
The yuan changed hands at 6.2376 per dollar at midday, down 0.8 percent from Thursday's close.
The central bank set its midpoint at 6.2923 per dollar, a mild softening after the dollar index strengthened in overnight trade.
Traders believe there is now a coordinated effort between China's big four banks and the central bank to keep the rate from banging into the top end of the trading limit - as it did on most days in late November and early December - by stepping in to buy dollars to keep the market liquid.
While previous suspected interventions by the central bank failed to restore normal trade, the current intervention has been sustained for nearly four days now.
"The spot rate is unlikely to hit the edge of its trading band today because the big banks want to maintain the current rate," said a Shanghai trader.
The People's Bank of China (PBOC) allows the exchange rate to rise or fall 1 percent from the midpoint it sets each morning.
Signs of economic recovery, including unexpectedly strong exports in October, combined with political events (such as the U.S. election and China's power transition in November) to push up the yuan as corporates unloaded dollars into an already flush market.
The United States enacted a fourth round of monetary easing (QE4) on Wednesday, which dealers and economists said is likely to put pressure on the yuan to rise in 2013, but a trader at a major state-owned bank in Shanghai said that the current bullish sentiment is not a reaction to QE4.
"Next year QE4 might push more liquidity into Hong Kong, and if that is allowed to flow into the domestic market it will strengthen bullish yuan sentiment," she said.
"But the current trend is more about internal factors."
The dollar premium for the one-year swaps remained flat on Thursday after plummeting on Wednesday, following what traders said was panic selling of long forward dollar positions and the breaching of stop-loss triggers which exacerbated the dive.
The new consensus rate implies an interest rate of 1.2251 for one-year USD funds.
One-year non-deliverable forward contracts traded in Hong Kong continued to express expectations for future yuan depreciation, changing hands at 6.3140 at midday. However, analysts say some technical hedging strategies can sometimes distort the NDF market.
The offshore spot yuan (CNH), continued to trade firmer than the onshore spot, at 6.2210, as it has since late November, indirectly supporting the thesis that the onshore version is being artificially held back.
(Editing by Eric Meijer)