August 11, 2017 / 4:29 AM / in a year

China's yuan eases, but remains on track for best week since 2005

SHANGHAI (Reuters) - China’s yuan weakened against the U.S. dollar on Friday after a weaker-than-expected fixing, as the dollar’s recent broad losses helped set the stage for some bargain hunting, traders said.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

The Chinese currency remained on track for its best week since July 2005, when the yuan was revalued and taken off a fixed dollar peg.

Prior to market opening, the People’s Bank of China (PBOC) set the yuan’s midpoint at 6.6770 per dollar, the strongest level since Sept. 22, 2016, as the Chinese currency continued to be supported by a weak dollar.

Friday’s official guidance was 128 pips or 0.2 percent firmer than the previous fix at 6.6770 per dollar.

But some analysts said the midpoint fixing was not as strong as they had expected.

“This may indicate PBOC’s policy guidance - most recent yuan appreciation has been too big and too fast,” said Ken Cheung, who added that China might start to worry that an overly strong yuan would have a negative impact on its trade exports.

The weaker-than-expected yuan fixing also guided the spot rate lower. The yuan opened at 6.6699 per dollar, then weakened to a low of 6.6770 before changing hands at 6.6699 at midday, 214 pips below the previous late session close and 0.09 percent softer than the midpoint.

Still, if the yuan finishes the late night session at the current level, it would have strengthened nearly 0.9 percent against the dollar, a rare move for a currency that only trades in a wafer-thin range.

Traders said corporate dollar sales remained strong on Friday morning, but some investors started to resume building dollar positions by taking advantage of the cheaper greenback.

Daily trading volume surged to $18.688 billion as of midday, compared with full-day volume of $29.208 billion a day earlier.

Market watchers said while the market awaits U.S. consumer inflation data on late Friday to seek clues for the timing of further monetary tightening, escalating tensions on the Korean Peninsula remained a big concern for foreign exchange markets.

U.S. President Donald Trump warned North Korea again on Thursday not to strike Guam or U.S. allies, saying his earlier threat to unleash “fire and fury” on Pyongyang if it launched an attack may not have been tough enough.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.72, weaker than the previous day’s 94.97.

The global dollar index fell to 93.341 from the previous close of 93.401.

The offshore yuan was trading 0.24 percent weaker than the onshore spot at 6.6858 per 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 6.824, 2.34 percent weaker than the midpoint.

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

Reporting by Winni Zhou and John Ruwitch; Editing by Lisa Twaronite

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