China's yuan eased against the dollar on Monday, dragged lower by a weaker official yuan midpoint and rising corporate dollar demand which consolidated following Friday's solid US job data.
The dollar gave back gains against a basket of six major currencies on Monday morning, with the dollar index slipping 0.2 percent to 93.984 versus the previous close of 94.191. The dollar was elevated after in the wake of an upbeat US jobs report, cementing expectations that the Federal Reserve will raise interest rates this month and boosting the probability of two more hikes later in the year.
Prior to the market opening, the People's Bank of China set the yuan midpoint at 6.4208 per dollar, 130 pips or 0.2 percent weaker than the previous fix of 6.4078 last Friday.
Monday's official guidance rate was the lowest since January 18.
Weakness in the yuan fixing dragged the spot rate lower. The spot market opened at 6.4198 per dollar, fell to a low of 6.4234 before changing hands at 6.4198 at midday, 3 pips softer than the previous late session's close.
The yuan lost 0.43 percent to the dollar last week, and fell 0.31 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 97.33 last Friday, CFETS said on its website. And last week was the second straight week that the yuan fell against both the greenback and the currency basket.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.91, weaker than the previous day's 98.03.
The offshore yuan was trading 0.06 percent firmer than the onshore spot at 6.4158 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 6.5165, 1.47 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
Traders said the spot rate was tracking the dollar, which has curbed corporates' interest in liquidating their long dollar positions, with some market participants observing dollar buying interest at current levels.
Volume shrank in morning trade as some investors began to doubt the dollar's near-term strength. Volume was $8.744 billion as of midday, compared with full-day volume of $23.025 billion last Friday.
Market participants and analysts were also paying close attention to trade negotiations between the United States and China for clues to any impact on the Chinese currency.
China warned the United States on Sunday after the latest round of talks in Beijing that any agreements reached on trade and business between the two countries would be void if Washington implemented tariffs and other trade measures.