China's yuan is poised for its biggest quarterly gain since September 2014, underpinned by firmer central bank guidance as the country's financial markets continue to stabilise and the dollar loses momentum. Federal Reserve Chair Janet Yellen's cautious view on US rate hikes this week, which dampened views of other Fed colleagues suggesting another increase was imminent, continued to take a toll on the greenback on Thursday.
The dollar index fell 0.3 percent against a basket of six major currencies on Wednesday. Although it recovered some losses in Asian trade on Thursday, the dollar is on track for an almost 4 percent fall for the quarter, its worst in five years. As such, the People's Bank of China set the midpoint rate at its strongest this year at 6.4612 per dollar prior to market open on Thursday, 0.35 percent firmer than the previous fix of 6.4841.
In the spot market, the yuan opened at 6.4640 per dollar and was changing hands at 6.4662 at midday, strengthening 0.06 percent from the previous close. The yuan is now within striking distance of its 2016 peak of 6.4559 set on March 18. Onshore one-year yuan/dollar deliverable forwards were quoted at 6.5189 around midday. That implies expectations that the yuan will depreciate less over 12 months than was implied by Tuesday's close of 6.5338.
The offshore yuan was trading 0.10 percent weaker than the onshore spot at 6.4725 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 6.6275, or 2.51 percent softer than the midpoint.
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