China’s yuan weakened against the dollar on Monday in spite of a firmer midpoint, as investors sold the Chinese currency and the central bank was seen to be less heavily intervening in the market via state-owned banks.
“Dollar sales by state-owned banks on behalf of the central bank eased today,” said a dealer at a European bank in Shanghai.
“As the market still lacks confidence in the yuan’s value in the future, banks and their clients priced the currency weaker, taking advantage of the central bank’s eased intervention.”
The People’s Bank of China (PBOC) set the midpoint rate at 6.3584 per dollar prior to market open, slightly firmer than the previous fix of 6.3619.
The spot market opened at 6.3560 per dollar and was changing hands at 6.3673 at midday, 0.19 percent weaker than the previous close last Wednesday. The market was closed on Thursday and Friday for a holiday to mark 70 years after the end of World War Two.
The central bank surprised markets on Aug. 11 by devaluing the yuan by nearly 2 percent, which sparked sharp selling that forced it to come back into the market to dump dollars to stabilise the currency.
Traders said the yuan could easily depreciate to 6.4 versus the dollar if the PBOC stayed on the sidelines.
As a sign of weak sentiment towards the Chinese currency, the offshore yuan was trading 1.42 percent weaker than onshore spot at 6.4593 per dollar by midday on Monday.
Offshore one-year non-deliverable forwards contracts , considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.6325, or 4.13 percent weaker than Monday’s midpoint.