Off The Wire
China's yuan firms as dollar slips on expectations of slower Fed rate hikes
The People's Bank of China set the midpoint rate at 6.9071 per dollar prior to market open, weaker than the previous fix 6.8998.
The spot market opened at 6.9060 per dollar and was changing hands at 6.9066 at midday, -24 pips stronger than the previous late session close and -0.01 percent stronger than the midpoint.
The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day.
"The spot yuan market has been quite stable in the past few days and we are waiting to see if there's any big news after Fed rate hike that will offer us trading clues," said a trader at a Chinese bank in Shanghai.
The trader added that expectations of yuan depreciation were not very strong at present, and there were still a lot of uncertainties in the global market this year that will affect how the yuan will move.
The Thomson Reuters/HKEX Global CNH index , which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.13, firmer than the previous day's 94.1.
The global dollar index , which tracks the greenback against a basket of six major rivals, fell to 100.29 from the previous close of 100.41. It fell to as low as 100.02 overnight, its lowest since Feb. 7.
Evans, a voter on the Fed's policy-setting committee this year, repeated the central bank's call for two more interest rate increases this year, disappointing dollar bulls who had hoped for more a faster pace of hikes. "Structurally, the DXY (dollar index) may continue to threaten the key 100 level, especially if skepticism towards additional U.S. fiscal impetus continues to circulate. In this environment, market derived expectations for an even more hawkish Fed will also be expected to fade further," OCBC analyst Emmanuel Ng said in a note.
Liquidity conditions in China's money market were tight on Tuesday due to worries over a so-called quarterly Macro Prudential Assessment (MPA) check by the central bank at the end of this month that discouraged big banks from lending cash out to smaller ones.
The Shanghai Interbank Offered Rate (SHIBOR) for the seven-day tenor rose to 2.7680 percent, the highest since July 2015. Tuesday's rate was around two basis points higher than the previous close.
The overnight rate also stood at its highest level since April 2015.
The offshore yuan was trading 0.16 percent stronger than the onshore spot at 6.8955 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 7.1145, -2.92percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 3:52AM GMT:
ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.9071 6.8998 -0.11% Spot yuan 6.9066 6.909 0.03% Divergence from -0.01% midpoint* Spot change YTD 0.58% Spot change since 2005 19.83% revaluation
Item Current Previous Change
Thomson 94.13 94.1 0.0 Reuters/HKEX CNH index Dollar index 100.29 100.41 -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 6.8955 0.16% * Offshore 7.1145 -2.92% 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 Michelle Chen and Winni Zhou in Shanghai; Editing by)