China's yuan firms as US dollar weakens on worries over Trump's Russian connection

[SHANGHAI] China's yuan firmed on Wednesday, as the US dollar weakened on renewed concerns over President Donald Trump's alleged connection with Russia.

Traders also await Fed Chair Yellen's testimony to Congress, and assess the implication of a state media commentary piece on yuan reforms.

The People's Bank of China set the midpoint rate at 6.7868 per US dollar prior to market open, firmer than the previous fix 6.7983. The spot market opened at 6.7930 per US dollar and was changing hands at 6.7881 at midday.

The US dollar index dropped below the 96 level after emails disclosed Mr Trump's eldest son welcomed help from a Russian lawyer for his father's 2016 election campaign against Hillary Clinton.

"In the meantime, the trade theme related to central banks' hawkish shift started to face a reality check," Ken Cheung Kin Tai, Asian FX strategist at Mizuho Bank Ltd wrote, referring to the Bank of Canada's upcoming policy meeting, and Ms Yellen's testimony to Congress.

Also attracting traders' attention was a commentary in Financial News, a publication owned by the People's Bank of China, which said Beijing should reduce government intervention in the foreign exchange market, and take steps to widen the floating range of the yuan exchange rate.

"We believe that the yuan band widening is back to the reform agenda and is unlikely to take place within this year," Mizuho's Mr Cheung said.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.49, weaker than the previous day's 94.63.

The global US dollar index fell to 95.544 from the previous close of 95.669.

The offshore yuan was trading 0.01 per cent away from the onshore spot at 6.7877 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 6.9345, 2.13 per cent away from the midpoint.

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

REUTERS