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[SHANGHAI] China's yuan inched up slightly against the US dollar in thin trade on Monday, as the market shrugged off a rise in the greenback overseas.
The US dollar was higher against its major trading partners on Monday morning, supported by approval of a tax overhaul by the US Senate over the weekend.
The Senate's decision on Saturday moved Republicans and President Donald Trump a big step closer to their goal of slashing taxes in what would be the largest change to US tax laws since the 1980s.
While much more legislative work needs to be done before Mr Trump can sign anything into law, Tommy Xie, economist at OCBC Bank in Singapore, warned investors should watch out for potential impact on the US dollar.
"The chance of a dollar overshoot cannot be ruled out, which may weigh down RMB in the near term," Mr Xie said in a note on Monday.
Traders said an expected mid-December rate hike by the US Federal Reserve and any of its comments on the pace of further monetary tightening would also affect the Chinese currency.
Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.6105 per US dollar, 38 pips or 0.06 per cent weaker than the Friday's fix of 6.6067.
In the spot market, the onshore yuan opened at 6.6101 per US dollar and was changing hands at 6.6145 at midday, 61 pips firmer than the previous late session close.
The daily trading volume stood at US$8.4 billion as of midday, compared with a full day volume of US$28.3 billion on Friday.
The onshore yuan weakened around 0.3 per cent against the US dollar last week, registering its worst week since mid-October.
On a trade-weighted basis it eased about 0.31 per cent against a basket of currencies of trading partners in the same period, according to official data from the China Foreign Exchange Trade System (CFETS).
The index, published on a weekly basis, stood at 94.38 on Friday.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.15, firmer than the previous day's 95.14.
The global US dollar index rose to 93.108 from the previous close of 92.885.
The offshore yuan was trading three pips weaker than the onshore spot at 6.6148 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 6.77, 2.36 per cent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.