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China's yuan slightly firmer on tight liquidity

[SHANGHAI] China's yuan edged up slightly against the US dollar early on Wednesday on tight liquidity, with traders looking to a meeting of global central bankers in the United States for further cues.

Prior to market opening, the People's Bank of China set the midpoint rate at 6.6633 per US dollar, 36 pips or 0.05 per cent weaker than the previous fix 6.6597.

In the spot market, the yuan opened at 6.6620 per US dollar and was changing hands at 6.6613 at midday, seven pips firmer than the previous late session close and 0.03 per cent stronger than the midpoint.

Traders said the market was balanced in morning trade with prices traversing Tuesday's late night close though there were signs that liquidity was tightening again.

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Some traders said cash conditions have been tight for a week. Seasonal factors including corporate tax payments weighed on liquidity last week, and month-end cash demand started to emerge, adding to the pressure, they said.

In contrast, offshore yuan was trading weaker than its onshore counterpart due to ample liquidity in Hong Kong.

China's short-term money rates jumped to their highest level in nearly five months on Wednesday.

As of midday, offshore spot was trading 0.04 per cent weaker than the onshore spot at 6.6637 per US dollar.

A trader at a foreign bank in Shanghai said the market would focus on the annual central banking conference in Jackson Hole, Wyoming later this week where central bankers may signal their next policy actions. But he added that trading positions ahead of the conference would not change much.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.88, firmer than the previous day's 94.86.

The global US dollar index fell to 93.528 from the previous close of 93.545.

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 6.798, 1.98 per cent weaker than then midpoint.

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