China's yuan firms vs US dollar, but falls to lows against currency basket

[SHANGHAI] China's yuan firmed against the US dollar on Wednesday after the central bank fixed its daily midpoint at the strongest level in three months, but the renminbi slid to new lows against currencies in a trade-weighted basket.

The People's Bank of China (PBOC) set its official midpoint at 6.8635 per US dollar prior to the market open on Wednesday, its strongest level since Feb 17.

Wednesday's fixing was 155 pips, or 0.23 per cent, firmer than the previous setting at 6.8790.

It is the fifth trading day in a row that the PBOC guided the fixing higher, and Wednesday's midpoint was again much firmer than market expectations, traders said.

The index for the yuan's value based on a trade-weighted basket fell to 92.64, the lowest since the data was available in late 2015, according to Reuters calculations based on data from the China Foreign Exchange Trade System (CFETS).

The CFETS publishes index figures on a weekly basis.

A Shanghai-based trader at a Chinese bank said the CFETS index would have fallen further if the central bank had fixed its daily guidance weaker to match market forecasts.

In the spot market, the yuan opened at 6.8828 per US dollar and was changing hands at 6.8870 at midday, 10 pips firmer than the previous late session close but 0.34 per cent weaker than the midpoint.

"Corporate demand for the dollar picked up in morning trade and dragged the spot rate lower," said another trader at a Chinese bank.

Market players continued with their range-trading strategy and were not willing to test fresh lows on the yuan.

Major state-owned banks were not seen in the market offloading dollars, traders said. These banks often act on behalf of the central bank to stabilise the yuan from falling too fast.

The global US dollar index, which tracks six other major currencies, fell to 97.92 from the previous close of 98.105, giving back all of its "Trump bump" and wallowed near its lowest levels since Nov 9.

The US dollar nursed its losses in global markets after taking a combination of punches - solid euro zone economic data, a fall in US yields on heightened turmoil in Washington and downbeat housing data that reduced expectations of a Federal Reserve rate hike next month.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.71, weaker than the previous day's 93.78.

The offshore yuan was trading 0.14 per cent firmer than the onshore spot at 6.8773 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 7.0635, 2.83 per cent weaker than the midpoint.

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

REUTERS