The yuan started the week on a firmer footing on Monday, supported by corporate dollar sales after it drifted lower last week on a lack of concrete progress in US-China trade talks. Sentiment in the Chinese currency improved in early trade after a weak performance last Friday, when talks between Chinese and US officials offered little hope of a near-term breakthrough in defusing trade tensions, leading the renminbi to its third straight weekly loss.
Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.3584 per dollar, 63 pips or 0.1 percent weaker than the previous fix of 6.3521 on Friday. In the spot market, the onshore yuan opened at 6.3500 per dollar and was changing hands at 6.3536 at midday, 64 pips firmer than the previous late session close.
"We think the capital outflow risk is still low in the near term," said Tommy Xie, economist at OCBC Bank said in a note on Monday. "The market will closely monitor the development of US-China trade talks and the market may still be biased towards a stronger RMB should the US maintain its harsh tone." A trader at a foreign bank in Shanghai said the yuan was likely to trade narrowly in the near term amid uncertainty on whether the dollar's recent rally can be sustained. That has prompted domestic corporate clients to sell their long dollar positions to lock in profits when the spot rate has approached 6.36 per dollar, the trader said.
The dollar stayed near its 2018 peak early in the session after US jobs and wages data on Friday did little to water down perceptions of strength in the US economy, though renewed concerns about trade frictions could cloud its outlook.
The dollar index, a gauge measuring dollar strength against six other currencies stood at 92.541 at midday, compared with Friday's high of 92.908, its firmest since late December.
On Friday, China reported a preliminary current account deficit of $28.2 billion in the first quarter this year - its first quarterly current account deficit in nearly 17 years.
Washington has demanded that China reduce its trade surplus with the United States by at least $200 billion by the end of 2020, people familiar with the talks said.
China had a record US goods trade surplus of $375 billion in 2017.
Market watchers said the shrinkage in China's current account surplus could put some depreciation pressure on the currency in the longer term.
The Chinese currency weakened 0.46 percent versus the greenback last week, but edged up 0.15 percent on a trade-weighted basis against a basket of its trading partners' currencies, according to official data from the China Foreign Exchange Trade System (CFETS).
The index, published on a weekly and monthly basis, stood at 97.52 last Friday, CFETS said on its website. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.37, firmer than the previous day's 98.36.
The offshore yuan was trading 0.01 percent weaker than the onshore spot at 6.3545 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 6.4538, 1.48 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.