China's yuan set for its best week since 2005, supported by a weaker US dollar

[SHANGHAI] China's yuan firmed against the US dollar for a fourth straight day on Friday due to broad-based weakness in the greenback, putting the Chinese currency on course for its best week since 2005.

The People's Bank of China set the yuan midpoint at 6.7744 per US dollar prior to market opening, its strongest level since Nov 7 2016.

Friday's official guidance was 196 pips or 0.3 per cent firmer than the previous day's fixing at 6.7940 per US dollar.

The strength in the guidance reflected weakness in the US dollar, which languished near a nine-month low against a basket of currencies in the overseas market.

The global US dollar index, which measures US dollar strength against six other currencies, stood at 95.511 as of 0314 GMT, after hitting a low of 95.470, the weakest level since October 2016.

In the domestic spot market, the yuan opened at 6.7691 per US dollar, jumped to 6.7551, then retreated to 6.7670 as of 0314 GMT, 181 pips stronger than the previous late session close and 0.11 per cent firmer than the midpoint.

For the week, the yuan was up around one per cent against the US dollar. If these gains are sustained by the close of trade, this week will be the yuan's best since July 2005, when China revalued its currency by 2.1 per cent and de-pegged it from the US dollar.

The yuan is also on course to strengthen by 2.7 per cent against the US unit in the first half of this year, after shedding around 6.5 per cent in 2016.

Traders said they saw some major state-owned banks selling the US dollar in the market on Friday, but added that it was not clear whether the banks were executing their clients' orders or were part of the official support to prop up the yuan.

State banks have been regular dollar sellers since late last year in what traders believe is part of official efforts to prevent the yuan from weakening too fast.

Better-than-expected manufactory data had little impact to the forex market, according to market participants.

China's manufacturing sector expanded at the quickest pace in three months in June, buoyed by strong production and new orders, reassuring news for authorities trying to strike a balance between deleveraging and keeping the economy on an even keel.

Separately, official data showed on Thursday that China recorded a surplus in its capital and financial account in the first quarter, indicating net capital inflows as policymakers tightened supervision of outflows.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.61, firmer than the previous day's 94.41.

The offshore yuan was trading 0.08 per cent firmer than the onshore spot at 6.7613 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 6.938, 2.36 per cent weaker than the midpoint.

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

REUTERS