China's yuan was little changed against the dollar on Thursday, despite the central bank setting the daily guidance rate at more than a two-week high, and trading remained light. The People's Bank of China (PBOC) set the midpoint rate at 6.115 per dollar prior to market open, the highest level since May 22, or 0.04 percent firmer than the previous fix at 6.1173.
The spot market opened at 6.2052 per dollar and was changing hands at 6.2066 at midday, almost unchanged from the previous close. The yuan moved in a narrow range between 6.2052-6.2071 per dollar level in the morning trading session. Thursday's two-week high midpoint was a response to the dollar's drop overnight on global markets, traders said. The dollar tumbled to two-week lows against the yen on Wednesday after Japan's central bank chief said the yen was unlikely to fall further.
The offshore yuan was trading at 6.2105 per dollar, 0.06 percent weaker than the onshore spot rate. 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 6.2425, 2.04 percent weaker away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 percent in either direction, corporates are much warier of using the NDF to hedge given the basis risk inherent in them.
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