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China's yuan slips despite stronger midpoint
January 13, 2017 / 5:05 AM / 10 months ago

China's yuan slips despite stronger midpoint

HONG KONG (Reuters) - China’s yuan slipped against the U.S. dollar on Friday, even amid a stronger midpoint and support from state banks.

A customer holds a 100 Yuan note at a market in Beijing, August 12, 2015. REUTERS/Jason Lee/File Photo

The People’s Bank of China set the midpoint rate at 6.8909 per dollar prior to market open, firmer than the previous fix 6.9141.

The spot market opened at 6.9050 per dollar and was changing hands at 6.8974 at midday, 73 pips weaker than the previous late session close and 0.09 percent easier than the midpoint.

“The yuan is quite steady in the morning as state banks are offering dollars in the market,” said a trader at a Chinese bank in Shanghai.

Spot yuan changed hands within a narrow range between 6.9070 and 6.8976 per dollar in morning trade.

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

The trader said the move to dampen yuan short-sellers at the beginning of the year may not change the yuan’s long-term downtrend as the dollar is expected to remain strong this year, although the pace of its depreciation will likely be controlled.

China’s patchy economic outlook has weighed on the renminbi. The country’s massive export engine sputtered for the second year in a row in 2016 as it now confronts the possibility of a trade war with the United States.

Emerging market currencies, however, got some reprieve this week as the dollar rally lost momentum after U.S. President-elect Donald Trump’s news conference disappointed some investors expecting more details on his fiscal spending and tax plans.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.08, firmer than the previous day’s 95.74.

The global dollar index rose to 101.49 from the previous close of 101.35.

The offshore yuan was trading 0.55 percent stronger than the onshore spot at 6.8599 per dollar. The spread between onshore and offshore yuan spot was around 300 pips.

The overnight yuan borrowing rate in Hong Kong was fixed at 7.57 percent on Friday, higher than Thursday’s 2.69 percent, due partly to volatile market conditions after offshore rates spiked this month.

Market players say the shrinking offshore yuan pool suggests that short-term yuan borrowing rate can be easily affected by fund flows and will be subjected to more volatility in the coming months, especially ahead of the Lunar New Year.

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 7.1635, or -3.81 percent weaker than the midpoint.

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

Reporting by Michelle Chen; Editing by Jacqueline Wong

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