China's yuan inched up against the US dollar on Wednesday after dollar selling by companies emerged to support the Chinese currency, and in spite of a weaker midpoint fixing. Market sentiment was not affected by a North Korean test launch of an intercontinental ballistic missile (ICBM), traders said. The key focus remained on the progress of US tax cuts as a final vote by the Senate would be set up as soon as Thursday.
Prior to market opening on Wednesday, the People's Bank of China set the midpoint rate at 6.6011 per dollar, 67 pips or 0.1 percent weaker than the previous fix of 6.5944. In the spot market, the onshore yuan opened at 6.6049 per dollar and was changing hands at 6.5993 at midday, 61 pips firmer than the previous late session close and 0.03 percent stronger than the midpoint.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.14, firmer than the previous day's 95.12. The offshore yuan was trading 0.11 percent weaker than the onshore spot at 6.6065 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 6.7525, 2.24 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. A trader at a Chinese bank said some corporate dollar selling emerged to support the yuan when the spot rate weakened near 6.61 per dollar in early trade.
However, some market participants said seasonal dollar demand from companies and households to meet year-end financing needs would soon cap the yuan's upward momentum. On Wednesday, traders said the yuan was trapped in a narrow range and continued to await direction from movements in major currencies in global markets.
The dollar edged slightly lower against a basket of six other major currencies to 93.191, following overnight gains of 0.4 percent. Iris Pang, economist at ING, said she expected the currency's appreciation trend to continue.