Yuan continues to weaken against USD

The yuan's exchange rate in the spot market fell beyond 6.20 to the US dollar shortly after midday on Wednesday, the lowest since April 2013, triggering fresh concerns about the currency's volatility following a widening of its daily trading band Monday.

The yuan's spot price against the dollar weakened by 45 basis points to close at 6.1965 on Wednesday, sliding for a third consecutive day since the People's Bank of China (PBOC), the central bank, doubled the yuan's trading band to 2 percent, effective from Monday.

The yuan's central parity rate against the dollar was fixed at 6.1351 on Wednesday, weakening from Tuesday's reference rate of 6.1341.

"Recent fluctuations in the yuan are a reflection that the market is still clouded by depreciation concerns, which have increased following bearish economic indicators for the first two months," Liu Dongliang, a senior currency analyst at China Merchants Bank Co in Shenzhen, told the Global Times Wednesday.

However, near-term volatilities do not necessarily point to a sustained depreciation trend, market observers noted.

While the market has thus far been largely reliant on the reference rate fixed by the PBC for making transactions, it will take time for market participants to find a new set of references after the widening of the trading band, Liu said.

The exchange rate against the dollar will gradually stabilize, he went on to say, forecasting that the yuan's average price per dollar for the year will be around 6.1.

"The market conditions are considerably more stable than some analysts [who read too much into the yuan's recent volatility] think," Robert Minikin, a senior foreign exchange strategist at Standard Chartered Plc in Hong Kong, told the Global Times Wednesday.

China has substantial asset reserves, so the authorities have sufficient ability to ensure stability in the financial market, Minikin noted.

"A mild appreciation trend is still likely," he said, predicting that the yuan will break through the level of 6 per dollar by year-end.

Meanwhile, Minikin stressed that the yuan's modest appreciation has to happen in a context of more two-way variability, in order to ensure that capital inflows don't pour into China.

Greater two-way fluctuations of the currency will be the norm this year, and it's unlikely to have an impact on growth in China's trade and real economy, Wang Tao, chief China economist at UBS AG, also said in a research note on Tuesday.