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China's yuan eases on weaker fixing as US dollar strengthens overnight
[SHANGHAI] China's yuan weakened slightly against the US dollar on Tuesday, pulled down by a softer official midpoint following a rise in the greenback overnight.
Prior to market opening, the People's Bank of China set the midpoint rate at 6.7485 per US dollar, 75 pips or 0.1 per cent weaker than the previous fix of 6.7410.
The move in the yuan guidance, its biggest one-day weakening in percentage terms in three weeks, was mainly due to a rebound in the greenback overnight in the overseas markets on upbeat US economic data, traders said.
The US dollar index, a gauge that measures dollar strength against six other major currencies, stood at 93.934 at midday, having pulled up from Monday's trough of 93.823, its lowest level since June 2016.
The spot market opened at 6.7525 per US dollar and was changing hands at 6.7507 at midday, only five pips weaker than the previous late session close and 0.03 per cent softer than the midpoint.
"When dollar index fell, prices of USD/CNY fell; and when dollar index was up, USD/CNY rebounded slightly. Recent intraday trade was mainly following the dollar's movements," said a trader at a Chinese bank in Shanghai.
The trader expects the yuan to trade at around the 6.75 per US dollar level if the US dollar index hovers at 94, and the Chinese currency is likely to test a high of 6.7 if the US dollar index weakens again to 92.
Several traders said they had not seen major state-owned banks selling US dollars in the onshore market on Tuesday morning. The big banks briefly appeared to be dumping US dollars on Monday afternoon but were absent for quite a few sessions before that.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.81, firmer than the previous day's 93.74.
The offshore yuan was trading 0.05 per cent firmer than the onshore spot at 6.7475 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 6.886, 2.00 per cent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.