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China's yuan edges down, trend of general stability intact

China's yuan weakened slightly on Friday, with US dollar demand from industrial firms marginally exceeding supply, traders said.

[SHANGHAI] China's yuan weakened slightly on Friday, with US dollar demand from industrial firms marginally exceeding supply, traders said.

But the Chinese currency remained largely stable, as it generally has been since early January amid signs China's economy is improving slightly.

The People's Bank of China set the midpoint rate at 6.4898 per US dollar prior to market open, 0.15 per cent weaker than the previous fix of 6.4803.

Spot yuan opened at 6.4806 per US dollar and was changing hands at 6.4823 at midday, 0.04 per cent weaker than the previous close.

If the yuan's Friday close is the same as the midday level, it would soften less than 0.1 per cent for the week.

"The market is operating more on its own supply and demand of late, as a stabilising yuan allows the central bank to largely stay on the sidelines," said a trader at a European bank in Shanghai.

"For the day, corporate dollar demand slightly surpassed the overall supply," he said.

"However, the consequent slight weakening of the yuan did not represent a firm downtrend."

For March, China reported a slew of better-than-expected economic data, particularly a strong foreign trade performance. That soothed global investors jittery about the health of the world's second-largest economy, which had its slowest growth since 2009 in the first quarter.

After the yuan's steep depreciation in December, Beijing toughened its policy and has intervened to keep the currency yuan stable since early January.

A report by the Bank for International Settlements (BIS) on Thursday showed heavy capital outflows from emerging markets late last year.

While the situation has changed somewhat this year, the trend for capital leaving developing countries such as China has not been reversed, at least for now, so there will be longer-term downward pressure on the yuan, traders said.

In fourth quarter of 2015, "cross-border lending" to residents of mainland China dropped by US$114 billion, or 25 per cent from a year earlier, the BIS report said.

That covered a period when the US dollar was strengthening in global markets while the Federal Reserve weighed and then raised US interest rates for the first time in nearly a decade.

The dollar index has since weakened sharply, helping stabilising movements in the yuan, though some traders say the general trend for the US currency to strengthen has not yet reversed.

On Friday, the offshore yuan was trading 0.08 weaker than the onshore spot at 6.4887 per US dollar.