China's yuan edged up against the US dollar on Monday, following the central bank's fixing of a slightly firmer midpoint. Prior to market opening on Monday, the People's Bank of China set the yuan midpoint rate at 6.5419 per dollar prior to market open, 4 pips firmer than the previous fix of 6.5423. In the spot market, the yuan opened at 6.5510 per dollar and was changing hands at 6.5480 at midday, 20 pips firmer than the previous late session close but 0.09 percent weaker than the midpoint.
Last week, the Chinese currency had its biggest weekly loss since November, weakening 0.93 percent against the dollar after the PBOC relaxed some capital outflow curbs. Before sliding, the Chinese currency strengthened to have a year-to-date gain of more than 7.5 percent, erasing its losses in 2016. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.85, weaker than the previous day's 95.92.
The global dollar index rose to 91.882 from the previous close of 91.872. The offshore yuan was trading 0.01 percent firmer than the onshore spot at 6.5475 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 6.6795, 2.06 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The market has "clearly received" the signal that China has been uneasy about the pace of appreciation, Tommy Xie, economist at OCBC Bank in Singapore said in a note on Monday morning. But Xie said that factors that are supportive to the yuan remain intact and he expects the downward adjustment in the onshore yuan to be limited. Some traders said they expected the yuan to consolidate in a range of 6.50 to 6.55 per dollar in the near term.
One trader from a Chinese bank said the mid-month period remained as peak season for corporate dollar demand, which dragged the spot yuan rate lower than Monday's fixing. Oil firms usually build up their dollar reserves at mid-month, while other companies face rising dollar requirements for trade and finance purposes when the month-end approaches. On a trade-weighted basis, the yuan weakened only 0.32 percent against a basket of currencies of trading partners last week, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 94.86 on Friday.
The PBOC sold a net 821 million yuan ($125.40 million) worth of foreign exchange in August, according to Reuters calculations based on central bank data released on Friday. The net foreign exchange sales data from last month suggested that the central bank reflected its attitude towards the market, Xie Yaxuan, chief economist at China Merchants Securities said on Monday.