China's yuan strengthened against an easing US dollar on Monday, snapping four straight sessions of losses, after US President Donald Trump criticised the greenback's strength and following a firmer currency fixing by the Chinese central bank. The dollar fell against its major trading partners after CNBC reported that Trump was worried the Federal Reserve will raise interest rates twice more this year.
Trump said the Fed's policy tightening and the strong dollar could hurt the US economy. Trump also accused China and the European Union in a Twitter post of manipulating their currencies and interest rates lower though yuan traders said the comments had no major impact on the Chinese currency yet.
The dollar index, a gauge that measures the unit's strength against a basket of six other currencies, fell to 94.277 as of midday, compared with a one-year high of 95.652 touched on July 19.
The weaker dollar offered some support for the Chinese yuan in morning trade on Monday, traders said, but they added that the gains in the local currency were eclipsed by market expectations that China would ease its monetary policy. "Against the international backdrop where the Fed is expected to tighten further, relaxing monetary policy could create a negative impact on the (Chinese) exchange rate," analysts at China Merchants Bank said in a note on Monday.
They also said that China's financial markets had higher expectations for easing monetary policy as signs of economic slowdown emerged. Prior to market opening, the People's Bank of China set the midpoint rate at 6.7593 per dollar, 78 pips firmer than the previous fix 6.7671. The official guidance rate largely matched market expectations and lifted the spot yuan higher. The onshore spot yuan opened at 6.7524 per dollar and was changing hands at 6.7585 at midday, 279 pips firmer than the previous late session close and 0.01 percent stronger than the midpoint.
Earlier on Monday, the central bank lent 502 billion yuan ($74.29 billion) to financial institutions via its one-year medium-term lending facility (MLF) with rates unchanged. Last week, the Chinese currency weakened 1.3 percent against the dollar, and it fell 1.1 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 93.78 on 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 93.9, weaker than the previous day's 94.09. The offshore yuan was trading 0.19 percent weaker than the onshore spot at 6.7714 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 6.833, 1.08 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.