April 27, 2018 / 4:53 AM / 7 months ago

Yuan set for worst month since Nov 2016, as dollar boosted by higher yields

SHANGHAI (Reuters) - China’s yuan weakened against the dollar on Friday as a softer midpoint and a broadly stronger greenback put the local currency on track for its worst monthly performance in 1-1/2 years.

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

The dollar held near a 3-1/2-month high against a basket of currencies on Friday morning, supported largely by a sharp jump in U.S. yields. [FRX/]

The global dollar index, a gauge that measures the unit’s strength against six other currencies stood at 91.527 at midday after hitting a high of 91.637 overnight, its strongest level since mid-January.

Prior to market opening, the People’s Bank of China reduced the midpoint rate to 6.3393 per dollar, the lowest since March 21, and 110 pips or 0.17 percent weaker than the previous fix of 6.3283.

In the spot market, the onshore yuan n opened at 6.3446 per dollar and was changing hands at 6.3354 at midday, 39 pips weaker than the previous late session close.

If the spot yuan finishes the late night session at the midday level, it would have lost 0.96 percent to the dollar for the month, posting the worst monthly performance since November 2016.

Traders said despite the weakness in the yuan, the Chinese currency was holding out relatively well given the broad gains made by the dollar. Also, the market is much calmer than in late 2016, when there was panic buying of the U.S. currency amid one-way yuan depreciation bets, they said.

However, downbeat industrial profits data suggested a weaker business environment and led some analysts to revise their forecast for the yuan.

Official data showed on early Friday that profits earned by China’s industrial firms rose 3.1 percent in March from a year earlier, slowing sharply from the pace seen early in the year.

“We have been bullish on the yuan, against the background of a strong economy and with business earnings growing at a decent rate. However, this looks to have changed according to this latest data,” Iris Pang, economist at ING said in a note.

ING revised its yuan forecast to 6.33 per dollar by the end of this year, down from an earlier forecast of 6.10.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.29, weaker than the previous day’s 98.32.

The offshore yuan was trading 0.08 percent stronger than the onshore spot at 6.3306 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 6.4395, 1.56 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 Shri Navaratnam

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