China's yuan off early highs, partly held back by US rate hike expectations

[SHANGHAI] The yuan came off early highs, but was still marginally firmer against the dollar on Friday after the central bank fixed a stronger midpoint.

If the yuan closes around the midday level, it will weaken a mild 0.2 per cent for the week, partly due to bearish pressures arising from mounting expectations that US interest rates will rise in June.

The People's Bank of China set the midpoint rate at 6.5510 per dollar prior to market open, 0.03 per cent firmer than the previous fix 6.5531.

Spot yuan opened at 6.5391 per dollar and then eased to trade at 6.5454 by midday, but was still 0.12 per cent firmer than the previous close.

"The fact that the market traded around 6.5450 indicated the price was fairly acceptable for our corporate clients," said a trader at a Chinese commercial bank in Shanghai.

The first batch of foreign commercial banks has registered to directly trade yuan used for overseas trade settlement and can begin doing so on Friday, the foreign exchange market operator said.

Traders said it was unclear how big trading volumes from those foreign banks would be, but the introduction of these commercial banks would inject vigour into China's interbank market.

The offshore yuan was trading 0.23 per cent softer than the onshore spot at 6.5607 per dollar.

The spread between those two narrowed from about 200 pips in past few trading days to around 150 pips on Friday, traders said.

Offshore one-year non-deliverable forwards contracts , considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.7360, or 2.75 per cent weaker than the midpoint.

REUTERS