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China state banks step in to support yuan for second day
[HONG KONG] China moved to shore up the faltering yuan currency for a second day on Wednesday, with the central bank setting a stronger-than-expected daily trading midpoint and state banks selling US dollars.
The moves helped the yuan inch up 0.1 per cent against the greenback despite strength in the global US dollar index.
Global investors' jitters over the yuan are intensifying ahead of the Jan. 20 inauguration of US President-elect Donald Trump, who threatened during the election campaign to slap high import tariffs on Chinese goods and label Beijing a currency manipulator.
The People's Bank of China set the midpoint rate at 6.9526 per US dollar prior to the market open, weaker than the previous fix of 6.9498.
In the spot market, the yuan opened at 6.9565 per US dollar and was changing hands at 6.9553 at midday, 75 pips stronger than the previous close and 0.04 per cent weaker than the midpoint.
Spot yuan traded within a very tight range between 6.9565 and 6.9540 in the morning.
It fell 6.6 per cent against the US dollar last year, its biggest one-year loss since 1994, and many market watchers expected to soften further this year, forcing Beijing to burn through more of its foreign exchange reserves if it wants to stabilise it.
"The central bank is in the market to stop the yuan from falling too quickly," said a trader at a Chinese bank in Shanghai.
"The yuan fixing was stronger than expected today, and also state banks continue to offer US dollars in the market," the trader said.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.26, firmer than the previous day's 95.81.
The US dollar moved back towards a 14-year peak as US debt yields resumed climbing, giving a lift against the safe-haven yen amid strong investor appetite for riskier assets.
The global US dollar index rose to 103.32 from the previous close of 103.21.
The offshore yuan was trading 0.12 per cent stronger than the onshore spot at 6.9471 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 7.285, or -4.56 per cent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.