China's yuan fell against the US dollar on Thursday, even as the central bank set a firmer midpoint, after the global dollar index rebounded from 1-1/2-month lows. But the Chinese currency could regain its footing if the outcome of a vote on a US healthcare bill later in the day weighs on the recovery in the greenback, traders say. The People's Bank of China set the midpoint rate at 6.8856 per dollar prior to market open, firmer than the previous fix 6.8889.
The spot market opened at 6.8862 per dollar and was changing hands at 6.8922 at midday, 118 pips weaker than the previous late session close and 0.10 percent weaker than the midpoint.
The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day.
Though the US Federal Reserve raised interest rates last week, the yuan has been quite stable bolstered by increasing rates in China's onshore market, said Ying Jian, a senior research analyst at Bank of China Hong Kong.
"Looking forward, the interest rate spread between the US and China should become an important reference to determine the yuan's future foreign exchange rate," Ying said.
Cash conditions in China's interbank market has remained tight as market participants scrambled for short-term funds on concerns central bank-led liquidity checks later this month will limit big banks' lending to smaller peers.
The Shanghai Interbank Offered Rate (SHIBOR) for the seven-day tenor rose to 2.8070 percent, the highest since July 2015.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.24, weaker than the previous day's 94.35.
The global dollar index rose to 99.814 from the previous close of 99.677.
Financial markets are now focused on whether US President Donald Trump can gather enough support at a vote later on Thursday to pass a bill to rollback Obamacare, one of his key campaign pledges, which will also indicate his ability to pass tax and spending reforms further down the line.
Trump's plan faces resistance from some conservative Republicans who view it as too similar to Obamacare, and from moderates concerned it will hurt some voters.
The offshore yuan was trading 0.25 percent stronger than the onshore spot at 6.8748 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 7.082, 2.77 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
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