China's yuan eases, set for weekly rise on dollar weakness

SHANGHAI: China's yuan slipped on Friday amid worries over Sino-US relations, but was set for a slight weekly gain amid dollar weakness.

The People's Bank of China set the midpoint rate at 6.4617 per dollar prior to the market open, 79 pips firmer than the previous fix of 6.4696.

In spot market trading, the yuan opened at 6.4680 per dollar and was changing hands at 6.4679 at midday, 84 pips weaker than the previous late session close.

The offshore yuan was trading at 6.4711 per dollar.

Traders said hopes for an easing in Sino-US tensions under the new Joe Biden administration were starting to fade, which could limit the yuan rally.

"The market is somewhat cautious for now amid the worries over Sino-US relations," said a trader at a foreign bank.

Janet Yellen, US President Joe Biden's nominee for Treasury Secretary, promised a comprehensive review of China's implementation of a Phase 1 trade deal, and said Washington would work more closely with allies to address "abusive" practices by the world's second-largest economy.

The Biden administration also faced pressure from Republican lawmakers on its second day in office for a more forceful response to Beijing's announcement of sanctions against the architects of former President Donald Trump's tough China policy.

Often fraught Sino-US relations have been one of the key factors influencing the yuan in over the past few years.

For the week, though, the yuan gained ground against the dollar which retreated as investors' appetite for riskier currencies increased.

The dollar was headed for its worst week of the year on Friday as investors refreshed bets that a pandemic recovery could push the greenback lower still.

If the yuan stays around its midday levels into the late night close, it would have appreciated 0.2% to the dollar for the week. So far in the new year, it has firmed 0.9%, extending a near 7% rally in 2020.

For the week, the Chinese currency also found support from strong GDP data.

China's economy picked up speed in the fourth quarter, with growth beating expectations to end a rough coronavirus-stricken 2020 in good shape. It is poised to expand further this year, even as the pandemic rages unabated elsewhere.

The country's foreign exchange regulator said the current yuan exchange rate is within a reasonable and balanced range.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.77, weaker than the previous day's 95.91.

The global dollar index fell to 90.099 from the previous close of 90.108.

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 6.6101, 2.25 percent away from the midpoint.

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