SHANGHAI, July 17 (Reuters) – China’s yuan firmed against
the U.S. dollar on Tuesday in brisk dollar selling as investors
held back from testing the psychologically important 6.7 per
dollar level, albeit after a much-weakened official fixing,
traders said.
Prior to market opening, the People’s Bank of China lowered
the midpoint rate to 6.6821 per dollar, the weakest
level since Aug.9, last year and 63 pips or 0.1 percent softer
than the previous fix of 6.6758.
Tuesday’s fixing largely matched market forecasts. In the
spot market, the onshore yuan opened at 6.6870 per
dollar, easing to a low of 6.6905 before switching direction and
bouncing back.
As of midday Shanghai time, onshore spot yuan were changing
hands at 6.6781, 143 pips firmer than the previous late
session’s close and 0.06 percent stronger than the midpoint.
Traders said dollar selling interest emerged when the yuan
weakened to near the 6.7 per dollar level, which is seen by many
market participants as a threshold separating bearish and
bullish yuan expectations for now.
Traders said several different forms of official
intervention had been deployed over the past few weeks when the
spot rate breached the key level, and investors were afraid that
such measures could be seen again if the yuan fell too far, too
fast.
However, a Shanghai-based trader at a Chinese bank said the
yuan was likely be range bound in the near term. The yuan’s
basket index had fallen to near last year’s closing level and
was now expected to trade in authorities’ comfort range.
The yuan’s value on a trade-weighted basis
against a basket of its trading partners’ currencies stood at
94.78 last Friday, while it finished 2017 at 94.85.
Some market participants said trade conflicts remained a key
topic and investors were on the lookout for any progress in the
trade dispute between the United States and China.
“Trade war concerns and weaker exports have weighed on the
CNY and will likely continue to put depreciation pressure on the
currency,” Wang Tao, head of China economic research at UBS,
said in a note on Tuesday.
She revised her forecast for the yuan to trade at about 6.8
per dollar at end-2018, and 6.9 at end-2019, down from 6.3 and
6.2, respectively, seen in a mid-June forecast.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 95.12, firmer than the previous day’s
95.03.
The global dollar index fell to 94.45 from the
previous close of 94.511.
The offshore yuan was trading 0.17 percent weaker
than the onshore spot at 6.6893 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 6.7463, 0.95 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot
rate.

The yuan market at 0401 GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.6821 6.6758 -0.09%

Spot yuan 6.6781 6.6924 0.21%

Divergence from -0.06%
midpoint*
Spot change YTD -2.56%
Spot change since 2005 23.93%
revaluation

Key indexes:

Item Current Previous Change

Thomson 95.12 95.03 0.1
Reuters/HKEX
CNH index
Dollar index 94.45 94.511 -0.1

*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People’s Bank of China (PBOC) allows the exchange rate to
rise or fall 2 percent from official midpoint rate it sets each
morning.

OFFSHORE CNH MARKET

Instrument Current Difference
from onshore
Offshore spot yuan 6.6893 -0.17%
*
Offshore 6.7463 -0.95%
non-deliverable
forwards
**

*Premium for offshore spot over onshore
**Figure reflects difference from PBOC’s official midpoint,
since non-deliverable forwards are settled against the midpoint.
.

(Reporting by Winni Zhou and John Ruwitch
Editing by Eric Meijer)