China's yuan firms as dollar takes breather, upside limited

[SHANGHAI The yuan firmed on Monday on modest dollar weakness globally, but traders remain bearish on the Chinese currency given growing expectations of a US rate rise next month and on increasing overseas asset purchases by Chinese companies.

"The dollar slipped in Asian morning trade, and investors purchased dollars at lower costs," said a trader at a European bank in Shanghai.

Spot yuan opened at 6.5430 per dollar and was changing hands at 6.5461 at midday, 0.05 per cent stronger than the previous close.

Prior to market open, the People's Bank of China set the midpoint rate at 6.5455 per dollar, or 0.08 per cent firmer than the previous fix, probably reflecting the dollar's mild retreat in global markets, traders said.

The dollar index, which tracks the greenback's performances against a basket major global currencies, pulled back slightly in Asian morning trade.

Overall, the yuan has been under pressure against the dollar since early May as investors have started to entertain the prospect of US rate rise next month rather than later in the year.

Adding to the drag on the yuan, Chinese corporate dollar demand in the domestic market has been on the rise since the start of this year as more Chinese companies conduct M&A activities overseas, traders said.

The offshore yuan has of late reflected this trend more closely, traders said. It was trading 0.21 per cent weaker than the onshore spot at 6.5602 per dollar by midday on Monday.

REUTERS