China's yuan eases

China's yuan fell against the US dollar on Monday after a weaker midpoint fixing and as the dollar gained traction on growing prospects over US tax reforms. Prior to market opening on Monday, the People's Bank of China lowered its official yuan midpoint to 6.6205 per dollar, the weakest since October 10.
Monday's official fixing, 113 pips or 0.17 percent softer than the previous fix of 6.6092 per dollar on Friday, largely matched market forecasts, traders said. The weaker midpoint guided the yuan lower, with spot yuan opening at 6.6311 per dollar and falling to a low of 6.6395 at one point on Monday morning, the softest level in two weeks.
As of midday, onshore spot yuan was changing hands at 6.6322, 127 pips weaker than the previous late session close on Friday. Its offshore counterpart also weakened. The offshore yuan fell below 6.64 per dollar at one point before paring losses to trade 0.02 percent weaker than the onshore spot at 6.6337 per dollar as of midday. Traders attributed the losses in the Chinese currency to the central bank's weaker daily guidance and the bullish dollar.
President Donald Trump's drive to overhaul the US tax code cleared a critical hurdle last week when the Senate approved a budget blueprint for the 2018 fiscal year, paving the way for Republicans to pursue a tax-cut package without Democratic support.
Progress in the tax reforms boosted expectations of increased US government borrowing and a possible pick-up in inflation. A trader at a foreign bank said the yuan was likely to track the dollar movement in the near term. Some market watchers said there remained uncertainty in the dollar's movement, which was likely to be affected by who Trump would appoint as the next Federal Reserve chief.
Wang Tao, economist at UBS in Hong Kong said in a note late last week she expected the yuan would be rangebound against the dollar for the remainder of the year, ending 2017 at 6.6 per dollar. "We expect the PBOC to keep CNY mostly stable against the basket, so CNY movements will pivot more on USD for the rest of this year - though USDCNY will likely hold steady/firmer ahead of US President Trump's November visit," Wang said. The yuan weakened around 0.6 percent against the greenback last week, but on a trade-weighted basis, it fell only 0.4 percent against a basket of currencies of trading partners in the same period, according to official data from the China Foreign Exchange Trade System (CFETS).
The index, published on a weekly basis, stood at 94.64 on Friday. Separately, liquidity in China's money market remained ample on Monday, traders said, as the PBOC injected a net 140 billion yuan on the first trading day this week following a generous 560 billion yuan net injection last week. The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.7606 percent at midday, nearly 7 basis points lower than the previous week's closing average rate.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.61, weaker than the previous day's 95.72. The global dollar index rose to 93.768 from the previous close of 93.701.
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 6.7875, 2.46 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.