China’s yuan firmed slightly on Monday despite a weaker midpoint setting by the central bank, as a disappointing U.S. jobs report reduced chances of a U.S. rate increase this month and kept the U.S. dollar on the back foot. The People’s Bank of China set the midpoint rate at 6.6873 per dollar prior to market open, weaker than the previous fix at 6.6727. The spot market opened at 6.6800 per dollar and was changing hands at 6.6783 at midday, about 0.1 percent stronger compared to Friday’s close at 6.6821, and 0.13 percent higher than the midpoint.
Traders said the yuan firmed in tandem with the global dollar index, which tracks the greenback against a basket of currencies, easing off to 95.753 from the previous close of 95.844. U.S. non-farm payrolls rose by a weaker-than-expected 151,000 jobs last month, reducing expectations that the Federal Reserve will raise rates later this month.
Still, traders noted the dollar’s losses were limited as the underlying strength in the U.S. economy meant the Fed remains on track to tighten by year-end. A Shanghai-based trader at a domestic commercial bank said the yuan is on a gradual depreciation path over the long run. “The dollar is relatively strong, and it will pressure the yuan to depreciate slowly over the long run,” he said.
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 6.8375, 2.20 percent weaker from the midpoint. China and the United States on Sunday committed anew to refrain from competitive currency devaluations, and China said it would continue an orderly transition to a market-oriented exchange rate for the yuan.
The remarks came from a joint “fact sheet”, issued a day after U.S. President Barack Obama and his Chinese counterpart Xi Jinping held talks in Chinese eastern city of Hangzhou, where leaders from the world’s 20 leading economies, the G20, were gathering for a summit on Sunday and Monday.
The three-month NDFs contract also breached the psychologically important 6.7 per dollar and stood at 6.7230 in morning trade. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.91, weaker than the previous day’s 95.07. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 3:35 AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.6873 6.6727 -0.22% Spot yuan 6.6783 6.6821 0.06% Divergence from -0.13% midpoint* Spot change YTD -2.77% Spot change since 2005 23.93% revaluation Key indexes: Item Current Previous Change Thomson 94.91 95.07 -0.2 Reuters/HKEX CNH index Dollar index 95.753 95.844 -0.1 *Divergence of the dollar/yuan exchange rate.
Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.6899 -0.17%.