SHANGHAI: The yuan edged lower against the dollar as it resumed trading on Monday after an extended holiday weekend, pressured by a much weaker midpoint set by the central bank in response to the dollar's rebound during the market closure.
Traders said investors are cautious ahead of the US Federal Reserve policy review later this week as they await clues to when the Fed might next hike rates, with markets pricing out a tightening at the June meeting.
"A July hike is still possible," said a dealer at a Chinese commercial bank in Shanghai. "So we are focusing on their tone regarding a July hike from the meeting."
The New York-based index provider MSCI will decide on June 14 whether to allow yuan-denominated shares - or A shares traded in mainland China - into its widely used Emerging Markets Index.
"I expect the inclusion of A shares is going to alleviate yuan's long term depreciation pressure as capital inflows increase and the demand for the Chinese currency rises," said a trader at another Chinese commercial bank.
However, inclusion in the MSCI benchmark is far from certain, according to people familiar with the matter.
The People's Bank of China set the midpoint rate at 6.5805 per dollar prior to market open, 0.32 percent weaker than the previous fix of 6.5593 last Wednesday. The market was closed on Thursday and Friday for public holiday.
Spot yuan was changing hands at 6.5877 at midday, easing 0.42 percent from the previous close.
Traders reported bouts of dollar buying from corporate clients in the morning as the trading volume remained active.
The latest China Foreign Exchange Trade System (CFETS) data showed that the index for the yuan's value based on the market's trade-weighted basket stood at 96.01 last week, the lowest on record. The index was first published by CFETS in December 2015, setting the yuan's value at 100 at the end of 2014.
By midday, the offshore yuan was trading 0.14 percent softer than the onshore spot at 6.597 per dollar. It breached an important support level of 6.60 on Friday when the onshore market was closed for holiday before regaining some ground on Monday.
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