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[SHANGHAI] China's yuan firmed on Wednesday after the US dollar sold off on poor second-quarter US productivity data.
Traders and analysts said that the Chinese central bank was likely to keep a relatively firm hand on the currency, however, in the run-up to the G20 meeting of major economies in Hangzhou in early September.
"The dollar index fell again today, so traders in the market were spontaneously selling the dollar in fear of further declines," said a trader at a Chinese commercial bank in Shanghai.
"There is a good chance that the government would want to stabilise the yuan ahead of the G20 in September."
The US dollar fell against the yen, euro and most other major currencies on Wednesday, after downbeat productivity data sapped some of the momentum it had gained from last week's robust US jobs report.
The US Labor Department said Tuesday that productivity, which measures hourly output per worker, dropped at a 0.5 per cent annual rate in the April-June period, extending the longest decline since 1979.
The People's Bank of China set the midpoint rate at 6.653 per US dollar prior to the market open, firmer than the previous fix of 6.6594.
In the spot market, the yuan opened at 6.6520 and was changing hands at 6.6469 at midday, 132 pips away from the last close and 0.09 per cent away from the midpoint.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.94, weaker than the previous day's 95.2.
The global dollar index fell to 95.774 from the previous close of 96.183.
The offshore yuan was trading -0.09 per cent away from the onshore spot at 6.6532 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 6.781, 1.89 per cent away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
China will report July lending and money supply data anytime from Aug 10-15, while investment, industrial output and retail sales data will be released on Friday.