China's yuan edged up against the US dollar on Monday, supported by slightly heavier corporate dollar selling. The dollar steadied on Monday after rallying on upbeat US jobs data, which sent bond yields surging on the prospects of increasing inflation and pressured equities.
Prior to market opening, the People's Bank of China (PBOC) set the official yuan midpoint at 6.3019 per dollar, 134 pips or 0.21 weaker than the previous fix of 6.2885 on Friday. Multiple traders said the guidance rate came in weaker than their models had suggested. But they added it was too early to say that the weakening bias in the fixing would be a sign to lean against a rapid rally in the yuan by the authorities.
In the spot market, the onshore yuan opened at 6.3049 per dollar and was changing hands at 6.2978 at midday, 12 pips firmer than the previous late session close and 0.07 percent stronger than the midpoint. Activity was thin, market players said, as financial institutions on Monday were ironing out technical issues related to a new trading platform.
Traders said corporate dollar selling outweighed demand, with appreciation pressure on the renminbi still heavy even after it posted its eighth straight week of gains against the dollar last week - the longest winning streak since mid-2013. It gained 0.48 percent versus the greenback last week, and on a trade-weighted basis edged up only 0.6 percent against a basket of currencies of its trading partners, according to official data from the CFETS.
The index, published on a weekly basis, stood at 96.08 on Friday. Tommy Xie, economist at OCBC Bank in Singapore, attributed the rise in the basket index to a sell-off of the Korean won and the Japanese yen last Friday. "Should the PBOC remain quiet, the risk of RMB's overshooting cannot be ruled out as the demand from exporters to sell USD ahead of the Chinese New Year holiday may keep the pair heavy.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.48, weaker than the previous day's 97.51. The global dollar index fell to 89.155 from the previous close of 89.195. The offshore yuan was trading 0.15 percent weaker than the onshore spot at 6.3071 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 6.432, 2.02 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.