China's yuan slips, eyes on GDP data next week

[HONG KONG] China's yuan snapped a five-day gaining streak and edged down against the dollar on Friday, as traders awaited economic growth data next week for clues on more stimulus measures.

Growth likely slowed to 7.2 per cent in the fourth quarter from a year earlier, meaning the full-year would undershoot the government's 7.5 per cent target and mark the weakest expansion in 24 years, a Reuters poll showed.

The People's Bank of China set the midpoint rate at 6.1188 per dollar prior to market open, firmer than the previous fix 6.1193.

The spot market opened at 6.1939 per dollar and was changing hands at 6.1979 at midday, 98 pips weaker than the previous close and 1.29 per cent weaker than the midpoint.

Despite the loss on Friday, the yuan appeared headed for a small weekly gain after the central bank set a series of stronger midpoints this week.

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 offshore yuan was trading 0.17 per cent weaker than the onshore spot at 6.2087 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 6.3065, 2.98 per cent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 percent in either direction, corporates are much warier of using the NDF to hedge given the basis risk inherent in them.

As a result the market has lost liquidity in recent years and has frequently proven an unreliable measure of market sentiment.

REUTERS