China's yuan eases on US dollar bounce, set for weekly loss

[SHANGHAI] China's yuan was subdued on Friday after the central bank fixed a weaker mid-point and the US dollar eased off multi-month lows, but will likely stay under pressure on corporate US dollar demand.

Before the market opened, the People's Bank of China set the midpoint rate at 6.7373 per US dollar, weaker than the previous fix of 6.7307, which was its strongest in nine months and its biggest one-day rise in percentage terms since June 28.

Thursday's fix reflected the dollar's descent to a 13-month low after the Federal Reserve's meeting earlier this week, where the US central bank's tone was perceived as dovish.

The US dollar eventually stalled in early Asia trading hours after bouncing back from the long-term lows. The spot market opened at 6.7440 per US dollar and was changing hands at 6.7483 at midday, 74 pips weaker than the previous late session close and 0.16 per cent softer than the midpoint.

The spot rate is currently allowed to trade within a range 2 per cent above or below the official fixing on any given day.

On the week, the yuan was on track for a 0.1 per cent loss, as corporate US dollar demand kept it under pressure.

Traders in the past week have noted that market expectations for a strong dollar have waned in the wake of a more dovish-sounding Fed. The central bank said it expected to start winding down its bond portfolio "relatively soon" but would carefully monitor price trends.

However, a Shanghai-based trader with a Chinese bank said the market remained balanced on Friday on both corporate dollar purchases and sales.

While companies which stocked up on US dollars when the depreciation expectation on the yuan was strong are liquidating their positions to cap losses, many companies are also taking advantage of the cheaper US dollar to pay dividends to offshore shareholders.

But traders see corporate US dollar purchases stretching into the beginning of August as Hong-Kong listed mainland companies buy US dollars to pay dividends to their overseas shareholders.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.78, firmer than the previous day's 93.73.

The global US dollar index rose to 93.873 from the previous close of 93.864.

The offshore yuan was trading 0.06 per cent away from the onshore spot at 6.7444 per US dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.875, 2.00 per cent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

REUTERS