China's yuan falls as rate talk buoys US dollar

[HONG KONG] China's yuan fell against the US dollar on Wednesday as strong consumer confidence data backed expectations for more US interest rate hikes this year.

The People's Bank of China set the midpoint rate at 6.8915 per US dollar prior to the market open, weaker than the previous fix of 6.8782.

In the spot market, the yuan opened at 6.8897 per US dollar and was changing hands at 6.8917 at midday, 97 pips weaker than the previous late session close and little changed versus the midpoint.

The yuan traded in a tight range between 6.8938 and 6.8897 in the morning.

"The yuan has been tracing overnight global dollar movements recently and spot yuan trading has been within a tight range where traders buy low and sell high to gain profits," said a trader at a Chinese bank in Beijing.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.09, firmer than the previous day's 94.01.

The US dollar index, which tracks the greenback against six major rival currencies, edged up to 99.721 from a low of 98.858 earlier this week, its weakest level since Nov 11.

The offshore yuan was trading 0.23 per cent stronger than the onshore spot at 6.8759 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 7.076, -2.61 per cent weaker than the midpoint.

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

In the interbank market, the Shanghai Interbank Offered Rate (SHIBOR) for the seven-day tenor was 2.81 per cent on Wednesday, its highest level since mid-2015, due to concerns about tighter liquidity heading into quarter-end.

REUTERS