Yuan weakens to near 4-week low but seen levelling out for now

[SHANGHAI] China's yuan slipped through the psychologically important 6.6 per US dollar level on Monday to its weakest level in nearly four weeks, dragged lower by a softer central bank fixing and rising seasonal demand for the greenback.

The Chinese currency weakened for a second straight week last week, losing 0.6 per cent of its value against the US dollar.

It has retreated more than 1,700 pips from a 21-month peak hit on Aug 8, sparking talk that authorities are growing uncomfortable with its rapid gains in recent months and the potential impact on exporters.

Prior to the market opening on Monday, the People's Bank of China lowered its official yuan midpoint to 6.5945 per US dollar, the weakest level since Aug 31, reflecting broad dollar strength in global markets.

Monday's fixing was 84 pips or 0.13 per cent weaker than the previous fix of 6.5861 on Friday, and largely matched market forecasts, traders said.

The weaker midpoint guided the spot yuan, which opened at 6.5974 per US dollar and weakened to a low of 6.6098 in early trade, the softest level since Aug 29.

As of midday, spot yuan was changing hands at 6.6022, 132 pips weaker than the previous late session close and 0.12 per cent softer than the midpoint.

It had dipped briefly below the 6.6 level last week.

US dollar demand rose on Monday as both companies and households stepped up dollar buying ahead of the week-long National Day holiday starting this Sunday.

Traders said 6.6 remained a key resistance point, as companies which hold long dollar positions often begin liquidating them at that level. Bank clients therefore suspect spot yuan has hit a bottom in the near term.

Market participants also expect authorities will want to keep the yuan relatively stable in the run-up to a key Communist Party meeting starting on Oct 18.

Any disruptions in markets or the economy would be unwelcome ahead of the Communist Party Congress, where President Xi Jinping hopes to strengthen and extend his leadership of the party.

On a trade-weighted basis, the yuan weakened only 0.34 per cent against a basket of currencies of trading partners last week, according to official data from the China Foreign Exchange Trade System (CFETS).

The index, published on a weekly basis, stood at 94.54 on Friday.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.42, weaker than the previous day's 95.58.

The global US dollar index rose to 92.244 from the previous close of 92.171.

The offshore yuan was trading 0.10 per cent firmer than the onshore spot at 6.5957 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 6.737, 2.12 per cent weaker than the midpoint.

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

REUTERS