China’s yuan weakened against the US dollar on Thursday due to higher corporate demand for the greenback, while the Chinese currency also slipped to a new low against its currency basket. The renminbi shrugged off the People’s Bank of China’s (PBOC) firmer guidance via its midpoint fixing. Before the market open, the central bank set the midpoint rate at 6.8612 per dollar, the strongest level since Feb. 17, firmer than the previous fix 6.8635.
The strength in the yuan midpoint followed a broad slide in the U.S. dollar as the political crisis in Washington appeared to deepen, likely delaying efforts by President Donald Trump to carry out his economic stimulus plans. Thursday’s official guidance rate was again much firmer than market expectations, but did not have much influence on the yuan, traders said.
Instead, bank clients took advantage of the fall in the dollar to scoop up the currency. In the spot market, the yuan opened at 6.8839 per dollar and was changing hands at 6.8878 at midday, 31 pips weaker than the previous late session close and 0.39 percent softer than the midpoint. “The U.S. dollar was weaker, but the yuan still traded within its previous range,” said a trader at a Chinese bank. The trader said the sideways market was persisting longer than expected, but he expected the spot market would continue such a pattern of trading in the near term.
It is the sixth straight session that the PBOC has guided the fixing firmer, but the index for the yuan’s value based on a trade-weighted basket fell further. It dropped to 92.51 from 92.64 a day earlier, the lowest since the data was available in late 2015, according to Reuters calculations based on data from the China Foreign Exchange Trade System (CFETS).
The CFETS publishes index figures on a weekly basis. Major state-owned banks were not seen in the market offering dollars in the spot market, traders said. These banks often act on behalf of the central bank to stabilise the yuan from falling too fast.
The global dollar index, which tracks six other major currencies, fell to 97.508 from the previous close of 97.575, giving back all of its “Trump bump” gains since Nov. 9. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.51, weaker than the previous day’s 93.69.
The offshore yuan was trading 0.15 percent firmer than the onshore spot at 6.8785 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 7.067, 2.91 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.