SHANGHAI, Feb 5 (Reuters) - China's yuan weakened to touch
one-week lows against the dollar on Friday after the central
bank set a weaker fixing, and as expectations of a strong U.S.
economic recovery put the greenback on course for its best
weekly gain in three months.
Traders said that dollar selling by corporates ahead of the
Lunar New Year holiday nevertheless limited the downside for the
yuan, which they expect to continue to fluctuate within a range
around U.S. dollar index moves.
Before the market open, the People's Bank of China set the
midpoint rate of the yuan's daily trading band at
6.471 per dollar prior, more than 100 pips weaker than the
previous fix of 6.4605.
Spot yuan opened at 6.4691 per dollar and touched
6.4822 per dollar, its weakest point since Jan. 28, before
paring losses to 6.4767 by midday. That was slightly weaker than
a late session close on Thursday of 6.4720.
The offshore yuan dipped against the greenback to
6.4835 per dollar.
"I feel like the weakening of the midpoint shows regulators
hope the yuan will have two-way fluctuations," said a trader at
a foreign bank. He added that the market has been cautious in
recent days as investors wait for clearer signs of the new U.S.
administration's approach to relations with China.
U.S. President Joe Biden on Thursday signaled a more
aggressive approach to China, calling Beijing "our most serious
competitor" in a speech promising a new era after the
scattershot foreign policy of his predecessor.
The yuan's weakness on Friday also came amid a bout of
dollar strength on investor views that the U.S. economic
recovery is on relatively strong footing.
Democrats in the U.S. Senate were poised for a marathon
session aimed at overriding Republican opposition to a $1.9
trillion COVID-19 relief proposal.
The global dollar index rose to 91.567 on Friday from
Thursday's close of 91.527.
Analysts nonetheless see room for a stronger yuan in the
medium term.
"The PBoC would like to stabilise its currency but it would
be complicated given current inflows following the inclusion of
China bonds in global bond index," Natixis economists Jianwei Xu
and Nordine Naam said in a note, adding that China is unlikely
to strongly intervene the forex market due to its Phase 1
agreement with the U.S.
They said they expect the dollar to weaken this year against
most currencies and expect the yuan to trade at 6.30 per dollar
within one year.
The yuan market at 4:10AM GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.471 6.4605 -0.16%
Spot yuan 6.4767 6.472 -0.07%
Divergence from 0.09%
midpoint*
Spot change YTD 0.80%
Spot change since 2005 27.79%
revaluation
Key indexes:
Item Current Previous Change
Thomson 96.79 96.86 -0.1
Reuters/HKEX
CNH index
Dollar index 91.567 91.527 0.0
*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% from official midpoint rate it sets each
morning.
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan 6.4835 -0.10%
*
Offshore 6.6456 -2.63%
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 Andrew Galbraith and Han Xiao; Editing by Sam
Holmes)
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