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China's yuan firms on weaker US dollar, awaits Premier Li, Fed rate clues

The People's Bank of China set the midpoint rate at 6.8988 per US dollar prior to market open, 135 pips firmer than the previous fix of 6.9123.

[SHANGHAI] China's yuan firmed against the US dollar on Monday as the greenback slid in global markets and as traders awaited further comments from policymakers at the annual session of parliament.

The People's Bank of China set the midpoint rate at 6.8988 per US dollar prior to market open, 135 pips firmer than the previous fix of 6.9123.

The US dollar was weighed down on Friday after some European Central Bank policymakers raised the possibility of hiking interest rates before bond purchases end.

It was also hurt by US job data on Friday that showed robust hiring but weak wage growth, which some analysts said could prompt the Fed to hike rates at a slower pace. Traders noted that a Fed rate hike on Wednesday was priced in.

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In the spot market, the yuan opened at 6.9052 per US dollar and was changing hands at 6.9083 at midday, 47 pips stronger than the previous late session close but 0.14 per cent weaker than the midpoint.

The domestic market was "balanced" with slightly stronger corporate dollar demand in morning trade, traders said.

"The yuan was swinging around 6.90 per dollar due to weakness in the dollar, which was not cheap enough to trigger heavy purchases," said a trader at a Chinese bank in Shanghai, expecting corporate US dollar demand would emerge if the yuan strengthens further to the 6.88 level.

"The market has priced in a March Feb rate hike, but is still waiting to see whether an ECB rate hike would come true," the trader added.

Some traders said the market has become more cautious and were taking profits when the US dollar rises a little.

Markets were also awaiting Premier Li Keqiang's annual news conference at the end of the National People's Congress on Wednesday.

The spot yuan weakened around 0.2 per cent to the US dollar last week, but the latest China Foreign Exchange Trade System (CFETS) data showed that the index for the yuan's value based on the market's trade-weighted basket remained stable, edging down only 0.05 per cent to 94.23 on Friday compared with a week earlier.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.11, weaker than the previous day's 95.32.

The global US dollar index fell to 101.18 from the previous close of 101.25.

The offshore yuan was trading 0.23 per cent firmer than the onshore spot at 6.8925 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 7.125, 3.17 per cent weaker than the midpoint.

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