China's yuan firmed against the US dollar on Monday after the central bank guided the currency higher for the fifth straight day, setting the midpoint at its strongest in nearly 11 months. The Chinese currency recorded the best weekly performance since July 2015 last week, gaining 0.94 percent against the greenback. It also gained 1.26 percent on a trade-weighted basis
against a basket of currencies of its trading partners, according to official data from the China Foreign Exchange Trade System (CFETS), the biggest weekly strengthening in percentage terms since the index was introduced in late 2015. "It shows that the recent rally in the yuan could also be attributable to changing sentiment in the onshore market in addition to a weak dollar," said Tommy Xie, economist at OCBC Bank in Singapore.
On Monday, the People's Bank of China (PBOC) raised its guidance for the yuan for the fifth session in a row to 6.6601 per dollar, the strongest since September 22, 2016, reflecting broad weakness in the dollar in global markets. Monday's midpoint was 41 pips or 0.06 percent firmer than the previous fix of 6.6642 set on Friday.
But some market players said Monday's fixing was slightly weaker than their expectations, saying the authorities may not want the yuan to firm too quickly in a short period of time. In the spot market, the yuan opened at 6.6680 per dollar and was changing hands at 6.6611 at midday, 55 pips firmer than the previous late session close but 0.02 percent weaker than the midpoint.
Traders attributed the yuan's gains to a continuation of corporate dollar sales. A trader at a Chinese bank noted the strong yuan also sparked some dollar bargain hunting, which pushed the Chinese currency weaker than the midpoint in morning trade. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.68, weaker than the previous day's 94.8.
The global dollar index rose to 93.097 from the previous close of 93.069. The offshore yuan was trading 0.27 percent weaker than the onshore spot at 6.6792 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 6.816, 2.29 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.