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China's yuan weakens as corporate demand for US dollars edges up

[SHANGHAI] China's yuan eased against the US dollar on Friday on slightly heavier corporate demand for the greenback, but losses were capped as market participants awaited a central bankers' conference for clues on further US monetary tightening.

The Chinese currency is set to finish flat against the US dollar for the week and has gained 4.2 per cent so far this year, supported by the US currency's broad weakness as well as Beijing's tighter controls on capital outflows.

Prior to Friday's market opening, the People's Bank of China set the yuan's midpoint rate at 6.6579 per US dollar, 54 pips or 0.08 per cent weaker than the previous fix 6.6525.

In the spot market, the yuan opened at 6.6605 per US dollar and was changing hands at 6.6660 at midday, 20 pips weaker than the previous late session close and 0.12 per cent softer than the midpoint.

Market voices on:

If the spot yuan finishes the late night session at the current level, the Chinese yuan will have traded largely flat against the US dollar for the week.

Traders said corporate US dollar purchases were heavier on Friday morning, dragging the spot yuan rate lower.

A trader at a Chinese bank noted that the stronger corporate demand this week suggested some investors might have thought the yuan was unlikely to strengthen further, and therefore took advantage of a cheaper US dollar to build up their positions.

Another trader at a Chinese bank said some market participants had squared their books and were on the sidelines on Friday as central bankers gathered for the US Federal Reserve's annual conference in Jackson Hole, Wyoming.

A Reuters poll published on Thursday showed that bullish bets on the Chinese yuan stood at three-year highs.

The US dollar index, which tracks the US unit against a basket of six major rivals, rose to 93.297 from the previous close of 93.277.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.87, weaker than the previous day's 94.89.

The offshore yuan was trading 0.06 per cent firmer than the onshore spot at 6.6617 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 6.8105, 2.24 per cent weaker than the midpoint.

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