SHANGHAI: China's yuan weakened against the dollar on Thursday morning, weighed down by companies' demand for the US currency, traders said.
The People's Bank of China set the midpoint rate at 6.8731 per dollar prior to market open, firmer than the previous fix of 6.8808.
The spot market opened at 6.8796 per dollar and was changing hands at 6.8790 at midday, 70 pips weaker than the previous late session close and 0.09 percent softer than the midpoint.
Traders said corporate dollar demand was strong on Thursday, the day after China announced that November foreign exchange reserves fell more than expected, to the lowest level in nearly six years.
Thursday's demand for dollars forced major state-owned banks to continue offering dollar liquidity in the onshore market.
"But they have changed their strategy to save bullets. They now sell more dollars when approaching the daytime close," said a Shanghai-based trader at a Chinese bank.
China takes the official market closing price at 4:30 p.m. (0830 GMT) the previous day into consideration when fixing the mid-point rate, part of efforts to let market forces play a bigger role in determining the yuan's value. The market also has an evening session lasting until 11:30 p.m. (1530 GMT).
The trader added there was little chance the central bank would relax its efforts to stabilise the spot yuan rate and ease expectations of yuan depreciation before the year's end.
ING Asia economist Tim Condon, in a note on Thursday, said that following the People's Bank of China's recent tightening of exchange controls "We think a second response will be a shift in the PBOC's yuan fixing policy to give greater weight to stabilising spot yuan and less to stabilising the yuan against a basket (of currencies of its major trading partners)."
Wang Tao, chief China economist at UBS, also wrote on Thursday that he expects there to be more capital outflow controls.
"Controls can and will likely be tightened further including higher reserve requirement on forward transactions and stricter document verification of FX transactions," he wrote.
The global dollar index fell to 99.989 from the previous close of 100.23.
The offshore yuan was trading 0.16 percent weaker than the onshore spot at 6.89 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 7.108, or 3.30 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
Comments
Comments are closed.