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Yuan weakens slightly as dollar shows signs of stability in Asian trade

The dollar index slumped 0.5 per cent against a basket of major global currencies on Wednesday, pushing the yuan sharply stronger in the Chinese market's evening trade.

Chinese central bank, renminbi, renminbi yuan, renminbi versus dollar, RBI, Raghuram Rajan, indian express editorialChina’s yuan weakened on Thursday as the dollar appeared to stabilise in Asian trade after a steep loss overnight, traders said.

The dollar index slumped 0.5 per cent against a basket of major global currencies on Wednesday, pushing the yuan sharply stronger in the Chinese market’s evening trade.

Reflecting the US currency’s overnight weakness, the People’s Bank of China (PBOC) set its official midpoint guidance rate at 6.4959 per dollar prior to market open, a sharp 0.38 per cent firmer than the previous fix of 6.5209.

But the midpoint was still weaker than the yuan’s overnight close of 6.4920, which had already factored in the dollar’s global weakness, traders said.

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As such, spot yuan opened at 6.4989 per dollar on Thursday and weakened slightly in the morning to change hands at 6.5033 at midday, or 0.17 per cent weaker than the previous close.

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“The dollar’s Asian performance offset the stronger PBOC’s midpoint,” said a trade at a European bank in Shanghai.

Expecting no major market-moving news soon, traders believe the yuan will continue moving in an inverse relationship to the dollar in the near term.

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Despite some overseas talk earlier this week that the PBOC was intervening in the market to bolster the yuan, traders said the yuan has been largely stable of late, with the central bank generally staying on the sidelines to let the market have a bigger say in the yuan’s value.

Besides, the PBOC is increasingly allowing its midpoint to converge with the yuan’s spot rate, making it less necessary for intervention, traders said.

On Thursday, the offshore yuan was trading 0.45 percent weaker than the onshore spot at 6.5324 per dollar, reflecting less confidence in the yuan’s value among foreign investors, which might be behind the rumours, onshore traders said.

First published on: 12-05-2016 at 10:40 IST
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