China's yuan inched up against the US dollar on Monday, as a much weakened official yuan midpoint prompted corporate dollar selling to prevent the yuan breaching a key threshold, traders said. Prior to the market opening on Monday, the People's Bank of China set the midpoint rate at 6.3034 per dollar, 137 pips or 0.2 percent weaker than the previous fix of 6.2897 on Friday.
Monday's official guidance rate, the weakest since April 10, reflected the dollar's movement overnight in global markets on rising US bond yields.
The dollar traded near a two-week high against a basket of major currencies, with the dollar index trading at 90.397 as of midday, compared with the milestone of 90.477 hit on Friday. In the spot market, the onshore yuan opened at 6.2957 per dollar and was changing hands at 6.2943 at midday, 33 pips firmer than the previous late session close and 0.14 percent stronger than the midpoint.
Traders said the yuan faced some resistance around the psychologically important 6.3 per dollar level on Monday morning, with corporate clients selling dollars when the spot rate approached the threshold to support the Chinese currency.
Market participants saw no signs of state-owned banks selling dollars to prop up the yuan on behalf of the central bank.
The index, published on a weekly and monthly basis, stood at 96.99 by the end of last week.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.13, firmer than the previous day's 98.09. The offshore yuan was trading 0.05 percent firmer than the onshore spot at 6.2914 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 6.387, 1.31 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.