July 25, 2018 / 5:24 AM / 10 months ago

China's yuan edges off 13-month low despite weaker fixing

SHANGHAI (Reuters) - China’s yuan inched up slightly and consolidated around the key 6.8 per dollar level on Wednesday, due largely to a stable greenback before a meeting of U.S. and European leaders.

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

The dollar was little changed against a basket of six other major currencies ahead of U.S. President Donald Trump and European Commission President Jean-Claude Juncker’s meeting on Wednesday, as the market’s focus shifted to the trade rift between the United States and Europe. [FRX/]

The yuan continues to face depreciation pressure following its worst month on record in June when it fell about 3.3 percent to the U.S. dollar.

Prior to market opening, the People’s Bank of China set the midpoint rate at 6.804 per dollar, 149 pips or 0.2 percent weaker than the previous fix 6.7891.

The midpoint came in largely matching market expectations, traders said.

“Today’s (USD/CNY) midpoint fix suggests that the PBOC has no qualms in setting it above psychological waypoints,” Terence Wu, FX strategist at OCBC Bank said in a note.

In the spot market, the onshore yuan opened at 6.7930 per dollar and was changing hands at 6.8018 at midday, 23 pips firmer than the previous late session close and 0.03 percent stronger than the midpoint.

The onshore spot yuan was above a low of 6.8295 per dollar hit on Tuesday, the weakest since June 27, 2017.

The global dollar index was trading at 94.64 as of midday, compared with the previous close of 94.608.

Despite the yuan’s consolidation around 6.8 per dollar, multiple traders said they did not see major state-owned banks attempting to prop up the yuan.

State-owned banks sold dollars in the forex market regularly in late 2015 and 2016 in what some traders believed was part of official efforts to support the Chinese currency.

“It appears that investors have been digesting the PBOC’s non-intervention FX policy,” Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, wrote in a note.

“In the meantime, the market was largely muted with Trump’s tweets on tariff measures, and it seems that investors were putting the trade war risk aside temporarily.”

He expects the market to stabilise in the coming days, with both onshore and offshore yuan to waver around 6.8 per dollar.

The Trump administration on Tuesday said it would use a Great Depression-era programme to pay up to $12 billion to help U.S. farmers weather a growing trade war with China, the European Union and others that the president began.

The offshore yuan was trading 0.19 percent softer than the onshore spot at 6.8145 per dollar as of midday.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.55, firmer than the previous day’s 93.37.

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 6.8645, 0.88 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 Jacqueline Wong

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