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China's yuan eases after first weaker midpoint in 6 days

[SHANGHAI] China's yuan weakened against the US dollar on Tuesday, after the central bank set its midpoint lower for the first time in six days following a rise in the greenback.

The People's Bank of China set the midpoint rate at 6.6689 per US dollar prior to market open, 88 pips or 0.13 per cent softer than the previous fix of 6.6601 on Monday, which was the strongest level in nearly 11 months.

The weaker midpoint reflected global US dollar strength as concerns over tensions between the United States and North Korea slightly eased for now. North Korean leader Kim Jong Un signalled that he would delay plans to fire a missile near Guam.

Analysts said that unlike two weaker-than-expected midpoints set last Friday and Monday, Tuesday's fixing largely met market expectations.

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In the spot market, the yuan opened at 6.6695 per US dollar and was changing hands at 6.6728 at midday, 13 pips weaker than the previous late session close and 0.06 per cent softer than the midpoint.

Traders said US dollar demand was slightly stronger, which put a cap on the yuan.

"Some traders were purchasing dollars to cover their short positions in the greenback, while some companies were also building up dollar positions in morning trade," said a dealer at a Chinese bank in Shanghai.

Oil firms usually shore up their US dollar reserves mid-month for their business needs, some traders said, noting such US dollar demand may rise soon to pile pressure on the Chinese currency.

Market participants also warned that Sino-US trade tensions could also weigh on the yuan.

US President Donald Trump on Monday authorised an inquiry into China's alleged theft of intellectual property in the first direct trade measure by his administration against Beijing, but one that is unlikely to prompt near-term change.

Separately, China's central bank injected 399.5 billion yuan (S$81.58 billion) into the financial system via one-year medium-term lending facility (MLF) loans on Tuesday to maintain stable liquidity.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.8, firmer than the previous day's 94.68.

The global US dollar index rose to 93.496 from the previous close of 93.411.

The offshore yuan was trading 0.18 per cent weaker than the onshore spot at 6.6845 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 6.818, 2.19 per cent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.