China's yuan firmed slightly against the dollar on Thursday on thin trading ahead of the Lunar New Year, but onshore forwards and the implied deposit rate soared due to tight liquidity before the week-long holiday, traders said. Key money rates also edged up.
The People's Bank of China set its official midpoint rate at 6.8588 per dollar prior to the market's open, firmer than the previous fix 6.8596.
The slightly stronger midpoint came after the US dollar struggled near multiple-week lows.
The spot market opened at 6.8691 per dollar and was changing hands at 6.8799 at midday, only 19 pips stronger than the previous late session close but 0.31 percent softer than the midpoint.
For the week, the spot yuan was traded largely flat against the US currency. Trading has wound ahead if the biggest Chinese holiday, which starts on Friday and ends on February 2. The daily trading volume was $3.55 billion as of 0323 GMT. China's onshore USD/CNY forwards jumped to 140 pips at one point in early trade, with the overnight implied deposit rate soaring to a high of 75.241 percent before retreating to 56.571 percent at 0323 GMT.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.7, weaker than the previous day's 95.86. The global dollar index fell to 99.873 from the previous close of 100.03. The offshore yuan was trading 0.78 percent firmer than the onshore spot at 6.8264 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 7.1255, 3.74 percent weaker than the midpoint.
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