China's yuan weakens as corporate dollar demand offsets stronger midpoint

[SHANGHAI] China's yuan weakened on Tuesday as dollar demand from banks' corporate clients offset a stronger central bank midpoint, traders said.

"Corporate dollar demand has been on the rise since the start of this year as more Chinese companies conduct M&A activities overseas," said a trader at a European bank in Shanghai.

"Such demand has periodically pushed the yuan to trade in divergence with the midpoint, although the yuan's temporary weakness driven by such demand does not represent a trend," he said.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4616 per US dollar, 0.05 per cent firmer than the previous fix of 6.4649.

Still, the spot yuan opened at 6.4636 per US dollar and was changing hands at 6.4676 at midday, 0.15 per cent weaker than the previous close.

The Chinese currency eased 0.2 per cent against the euro at 7.3758 by midday. It strengthened 0.2 per cent against the Japanese yen at 5.9791 to 100 yen.

The offshore yuan also weakened slightly, and was trading at 6.4755 per US dollar by midday, 0.12 per cent weaker than the onshore spot.

The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2 per cent from official midpoint rate it sets each morning.

REUTERS