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 SHANGHAI: China's yuan held steady against the US dollar on Tuesday, supported by corporate dollar sales as emerging currencies lost traction amid a global equities sell-off.

Traders said the effect of the central bank's weaker guidance via its daily fixing was eclipsed by corporate dollar sales.

The dollar stood tall as a rout in global equities sparked by fears over rising US inflation and interest rates prompted anxious investors to cut exposure to riskier assets and seek shelter in the relative safety of the greenback.

The US currency held firm against most of its counterparts with the exception of the Japanese yen, which is the perennial safe-haven bet during times of risk aversion.

Prior to market opening on Tuesday, the People's Bank of China set the official midpoint rate at 6.3072 per dollar, 53 pips or 0.08 percent weaker than the previous fix of 6.3019.

Tuesday's fixing was in line with market expectations, several traders said. Weaker than forecast guidance on Monday and prompted speculation if the weakening bias was a sign to lean against a rapid rally in the yuan by the authorities.

In the spot market, the onshore yuan opened at 6.3027 per dollar and was changing hands at 6.2930 at midday, 10 pips firmer than the previous late session close and 0.23 percent stronger than the midpoint.

Selling pressure on the dollar remained heavy on Tuesday, traders said, but seasonal dollar demand from households had picked up to limit gains in the Chinese currency.

Households usually buy dollars ahead of the Lunar New Year for overseas travel during the holiday.

"The global dollar index remains below the 90 barrier without showing a clear rebound, so our view for the yuan's movement in the near term is for it to continue upward," said a trader at a Chinese bank in Shanghai.

Liquidity in the foreign exchange market is expected to fall in the coming days as the week-long new year holiday approaches, starting on Feb. 15.

Separately, China is due to release January foreign exchange reserves data on Wednesday. A Reuters poll suggested that the reserves would likely have expanded to $3.168 trillion, rising for the 12th month in a row amid a strong yuan and tight regulations discourage capital outflows.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.78, firmer than the previous day's 97.51.

The global dollar index rose to 89.65 from the previous close of 89.554.

The offshore yuan was trading 0.18 percent weaker than the onshore spot at 6.3041 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 6.431, 1.93 percent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

Copyright Reuters, 2018

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