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China's yuan slightly eases, market sentiment remains weak
[SHANGHAI] China's yuan edged down against the US dollar on Wednesday as market sentiment remained weak as the year winds down.
The People's Bank of China set the midpoint rate at 6.9495 per US dollar prior to the market opening, weaker than the previous fix of 6.9462.
The spot market opened at 6.9500 per US dollar and was changing hands at 6.9549 at midday, only nine pips weaker than the previous late session close and 0.08 per cent softer than the midpoint.
"The overall market was calm. Some market participants were liquidating their positions at the year-end while some were purchasing some dollars and getting prepared for a new year," said a trader at a Chinese bank in Shanghai.
While many traders were on holiday, volumes were not low, as some market players sought to profit on transactions involving slight price swings.
The spot yuan is on track to finish the year with a loss of nearly 7 per cent against the US dollar, and traders expect depreciation pressures on the Chinese currency to extend into 2017.
"The yuan will have another volatile year in 2017, but the pace of depreciation may not necessarily accelerate," the trader said, expecting the yuan is likely to weaken another one to two per cent against the US dollar in the first quarter.
Another market focus will be household dollar purchases at the beginning of 2017, when individuals will get a fresh US$50,000 foreign-exchange conversion quota.
In Hong Kong, the overnight yuan borrowing rate jumped to 15.18333 per cent on Wednesday, its highest level since Sept 19.
Some traders said the surge was due to year-end seasonal factors and recent tightening measures by mainland authorities to stem capital outflows.
The offshore yuan was trading 0.02 per cent weaker than the onshore spot at 6.9535 per US dollar.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.06, firmer than the previous day's 96.03.
The global US dollar index fell to 102.97 from the previous close of 103.02.
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 7.274, or 4.46 per cent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.