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Yuan eases, but set for best week since mid-October
[SHANGHAI] China's yuan weakened against the US dollar on Friday, with strong corporate demand supporting the greenback but the Chinese currency is on course for its best week in more than a month.
Prior to market opening, the People's Bank of China (PBOC) set the official yuan midpoint at its strongest in six weeks at 6.5810 per US dollar.
The central bank's guidance rate breached the key 6.6 level, underpinned by a robust spot yuan performance the day earlier.
But traders said corporates' bargain hunting for the US dollar countered the stronger midpoint.
The midpoint was 211 pips or 0.32 per cent firmer than the previous fix of 6.6021 per US dollar.
Market participants said the official fix, the firmest since Oct 12, largely matched what their models had suggested.
"The yuan is becoming a fantastic benchmark for gauging US dollar sensitivity as the PBOC guidance is capturing the broader G-10 move well, as the pair took another leg lower on the back of the dovish FOMC," Stephen Innes, head of trading in Asia Pacific for Oanda said in a note on Friday.
In the spot market, the onshore yuan opened at 6.5730 per US dollar and was changing hands at 6.5890 at midday, 40 pips weaker than the previous late session close and 0.12 per cent softer than the midpoint.
If the yuan ends the late night session at the midday level, it would have gained 0.6 per cent against the US dollar for the week - its best weekly performance since mid-October. The yuan strengthened around 0.19 per cent a week earlier.
Traders said market sentiment remained cautious in early trade, but some corporate clients rushed to take advantage of the cheaper US dollar which dragged spot yuan lower.
The US dollar was under pressure in overseas market after the latest minutes from the Federal Reserve's policy meeting showed concerns over low inflation in the United States.
The global dollar index, a gauge that measures the unit's strength against six other major currencies, fell to 93.18 from the previous close of 93.22. And the dollar index is set for a weekly loss.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.51, firmer than the previous day's 95.41.
The offshore yuan was trading 0.02 per cent stronger than the onshore spot at 6.5877 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 6.7385, 2.34 per cent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.