China’s yuan traded firmer on Wednesday, supported by dollar sales after the People’s Bank of China fixed the yuan’s daily midpoint at a stronger level for the first time in four days.
China’s central bank set the midpoint rate at 6.7705 per dollar prior to market open, firmer than the previous fix 6.7744.
The spot market opened at 6.7742 per dollar and was changing hands at 6.7711 at midday, 84 pips firmer than the previous late session close and 0.01 percent weaker than the midpoint.
The PBOC’s stronger yuan fixing came as the dollar took a breather in global markets, though there are still strong expectations that U.S. interest rates will rise by the year-end, traders said.
“The market was spontaneously selling dollars in morning trade affected by the slide in the dollar,” said a Shanghai-based trader at a foreign bank, suggesting that big state-owned banks had not stepped in to offer dollar liquidity.
The dollar index, which tracks the greenback against six major rivals, stood at 98.764 after rising as high as 99.119 overnight, its highest level since February 1.
Investors have turned more cautious about buying dollars due to doubts about how long an extended phase of yuan weakness can continue, as the Chinese currency has been hitting fresh six-year lows on an almost daily basis for nearly three weeks.
Still, the trader at the foreign bank was concerned that some companies still had urgent demand for dollars, which might emerge if the yuan strengthened.
“The willingness to purchase dollars by some companies is strong, but they are still waiting for satisfying levels,” she said.
Some companies need more dollars to repay foreign debt and make overseas payments due at the end of the month.
The offshore yuan was trading 0.15 percent softer than the onshore spot at 6.7816 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 6.943, 2.48 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.