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China's yuan rises to three-week high as Fed sends dollar lower

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China's yuan rose to three-week highs against the dollar on Thursday, as the central bank set another stronger midpoint to reflect weakness in global dollar index after the Federal Reserve stopped short of signalling a near-term rate rise.

[HONG KONG] China's yuan rose to three-week highs against the dollar on Thursday, as the central bank set another stronger midpoint to reflect weakness in global dollar index after the Federal Reserve stopped short of signalling a near-term rate rise.

Authorities had allowed the currency to slip to near 6-year lows to the dollar earlier this month but have guided it higher in the past few days by stronger fixings and suspected interventions.

The People's Bank of China set the midpoint rate at 6.6597 per dollar prior to market open, firmer than the previous fix 6.6671. It was the strongest level since July 5.

Analysts expect the yuan to continue to edge higher in the short-term as its depreciation so far this year was not in line with China's still big trade surplus. The yuan has lost 2.5 per cent against the dollar this year.

"Given China's extremely high (goods) trade surplus at almost US$50 billion a month, the yuan's depreciation has surely raised the concerns of its trading partners," said Macquarie analysts in a report.

"China will host its first ever G20 Summit on Sept 4-5 in Hangzhou, so most likely it might guide the yuan stable or even stronger against a basket of currencies in weeks ahead."

The US dollar weakened on Wednesday after the Fed's statement was seen as increasing the possibility of a September rate hike, but not strongly pointing towards one.

The spot market opened at 6.6633 per dollar and was changing hands at 6.6622 at midday, -78 pips away from the previous late session close and 0.04 per cent away from the midpoint. The spot rate is currently allowed to trade with a range 2 per cent above or below the official fixing on any given day.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.91, weaker than the previous day's 96.14.

The global dollar index fell to 96.583 from the previous close of 97.053.

The offshore yuan was trading -0.09 per cent away from the onshore spot at 6.668 per 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 6.8115, -2.23 per cent away from the midpoint.

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

REUTERS