China's yuan firms slightly on corporate sales of US dollars

[HONG KONG] China's yuan firmed slightly on Monday, supported by corporate sales of US dollars despite a weaker fix by the central bank.

Traders said there is demand from Chinese companies to sell US dollars, mainly to fulfill customary trade-related transactions.

The People's Bank of China set the midpoint rate at 6.8743 per US dollar prior to market open, weaker than the previous fix 6.8456.

The spot market opened at 6.8660 per US dollar and was changing hands at 6.8665 at midday, 24 pips stronger than the previous late session close and 0.11 per cent stronger than the midpoint.

The spot traded within a very narrow 6.8687 to 6.8660 range per US dollar, largely remaining stable in the past month or so after some volatility toward the end of last year.

The spot rate is currently allowed to trade with a range 2 per cent above or below the official fixing on any given day.

"Spot yuan trading today is quiet as supply and demand is generally balanced while the central bank takes a hands-off approach," said a trader at a Chinese bank in Shanghai.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.49, firmer than the previous day's 95.22.

The Chinese central bank's FX purchase data and banks' FX settlement data released last Friday showed less capital outflows in January, suggesting Beijing's tightened capital controls are taking effect, Macquarie analysts said in a report.

Contrasting with the consensus view, the analysts believe the era of one-way yuan depreciation has ended and expect the yuan to see two-way volatility in 2017, forecasting the currency to finish the year without depreciation.

The global US dollar index fell to 100.92 from the previous close of 100.95.

The offshore yuan was trading 0.27 per cent stronger than the onshore spot at 6.8478 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 7.0865, 2.99 per cent weaker than the midpoint.

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



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