China's yuan eased slightly against the US dollar on Monday, dragged lower by a weaker official midpoint and stability in the greenback on optimism over the progress of US tax reform. The dollar held modest gains against its major peers on Monday morning, as Republicans on the House-Senate negotiating committee on Friday put the finishing touches on a sweeping tax overhaul that involves large corporate tax cuts.
Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.6162 per dollar, 49 pips or 0.07 percent weaker than the previous fix of 6.6113 on Friday. In the spot market, the onshore yuan opened at 6.6126 per dollar and was changing hands at 6.6115 at midday, 35 pips weaker than the previous late session close but 0.07 percent stronger than midpoint.
Traders said the spot yuan trade on Monday morning was very stable. "There was some corporate dollar selling in morning trade, but their dollar demand should emerge very soon," said a trader at a Chinese bank in Shanghai.
Households and companies usually shore up their dollar positions at the end of the year, but some market participants argued that dollar buying was not as strong as in previous years. A potentially stronger yuan was discouraging investors from stockpiling dollars. Several traders said the yuan was likely to finish the year around the current level, with some expecting it to strengthen slightly in 2018.
Domestic foreign exchange traders said they would pay attention to the outcome of the Central Economic Work Conference, which opened on Monday, state-owned Xinhua news agency said. A proposed gross domestic product growth target would be endorsed by top leaders at the closed-door meeting, and then announced at China's annual congress in early 2018.
The yuan strengthened around 0.24 percent against the dollar last week, but on a trade-weighted basis it edged down about 0.15 percent against a basket of currencies of trading partners, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 94.45 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 95.51, firmer than the previous day's 95.26. The global dollar index fell to 93.877 from the previous close of 93.932. The offshore yuan was trading only 1 pip weaker than the onshore spot at 6.6116 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 6.765, 2.20 percent weaker than the midpoint.