SHANGHAI (Reuters) - China's yuan rose to a more than one-week high against the U.S. dollar on Wednesday helped by firmer central bank guidance, but gains were capped by rising corporate demand for the greenback.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate
The spot market
As of midday, the spot yuan was changing hands at 6.3951, 57 pips firmer than the previous late session close and 0.14 percent stronger than the midpoint.
The dollar fell against a basket of currencies due to a firmer euro (EUR=) and concerns that the United States could pull out of a trade pact with Canada and Mexico. [FRX/]
Traders said the 6.4 per dollar was a psychologically important level for investors, with rising corporate demand for the greenback emerging after the yuan strengthened past the threshold.
"The yuan didn't change its direction to a strengthening path as (many corporate clients) were scooping up cheaper dollars in morning trade," a trader at a foreign bank in Shanghai said.
The trader expected the yuan could face some downward pressure in the near term as June marks a traditional peak for dollar demand.
Some market participants said the yuan could also face volatility from the outcome of the European Central Bank's policy meeting on June 14, which could put pressure on emerging markets if the ECB states when its stimulative policy will end.
Separately, the PBOC lent 463 billion yuan ($72.40 billion) to financial institutions on Wednesday via its 1-year medium-term lending facility (MLF), with interest rates unchanged.
Analysts believe the central bank may be adjusting the way it conducts its various liquidity operations as financing conditions change, with Wednesday's move possibly pushing back the timing of another expected cut in banks' reserve requirement ratios.
The Thomson Reuters/HKEX Global CNH index (RXYH), which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.2, firmer than the previous day's 98.13.
The global dollar index (DXY) fell to 93.872 from the previous close of 93.898.
The offshore yuan
Offshore one-year non-deliverable forwards contracts (NDFs)
One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0424 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.404 6.4157 0.18%
Spot yuan 6.3951 6.4008 0.09%
Divergence from -0.14%
midpoint*
Spot change YTD 1.75%
Spot change since 2005 29.42%
revaluation
Key indexes:
Item Current Previous Change
Thomson 98.2 98.13 0.1
Reuters/HKEX
CNH index
Dollar index 93.872 93.898 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 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan 6.387 0.13%
Offshore 6.4955 -1.41%
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.
($1 = 6.3947 Chinese yuan)