China's yuan inched up slightly against the US dollar in thin trade on Monday, as the market shrugged off a rise in the greenback overseas. The dollar was higher against its major trading partners on Monday morning, supported by approval of a tax overhaul by the US Senate over the weekend. The Senate's decision on Saturday moved Republicans and President Donald Trump a big step closer to their goal of slashing taxes in what would be the largest change to US tax laws since the 1980s.
While much more legislative work needs to be done before Trump can sign anything into law, Tommy Xie, economist at OCBC Bank in Singapore, warned investors should watch out for potential impact on the dollar. "The chance of a dollar overshoot cannot be ruled out, which may weigh down RMB in the near term," Xie said in a note on Monday.
Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.6105 per dollar, 38 pips or 0.06 percent weaker than the Friday's fix of 6.6067. In the spot market, the onshore yuan opened at 6.6101 per dollar and was changing hands at 6.6145 at midday, 61 pips firmer than the previous late session close.
The daily trading volume stood at $8.4 billion as of midday, compared with a full day volume of $28.3 billion on Friday. The onshore yuan weakened around 0.3 percent against the dollar last week, registering its worst week since mid-October. On a trade-weighted basis it eased about 0.31 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 94.38 on Friday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.15, firmer than the previous day's 95.14. The global dollar index rose to 93.108 from the previous close of 92.885. The offshore yuan was trading 3 pips weaker than the onshore spot at 6.6148 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 6.77, 2.36 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.