HONG KONG: China's yuan slipped on Wednesday after the US dollar recouped part of its previous losses, encouraging some investors to increase their bets for a weaker Chinese currency.
A weaker midpoint fixing and recent weak data also pushed the yuan lower.
The dollar clung to modest gains early on Wednesday, having made an about-turn overnight in a tentative sign that the recent sell-off may have run its course for now.
The People's Bank of China set the midpoint rate at 6.141 per dollar prior to market open, weaker than Tuesday's fixing of 6.1398.
The spot market opened at 6.2080 per dollar and was changing hands at 6.2113 at midday, marginally weaker than the previous close of 6.2053.
In the offshore market, the yuan was trading broadly in line with the onshore spot rate.
While the yuan has posted a middle-of-the-pack performance so far this year against the US dollar compared to other Asian currencies, its value against a trade-weighted basket has soared to a record high, with Wednesday's weaker midpoint setting signalling the authorities are getting increasingly uncomfortable with a stronger currency.
Unimpressive economic news has also helped the case for a weaker yuan. A survey this week showed activity in China's factory falling to a 11-month low as new orders shrank while producer price inflation has consistently been in the negative territory for months now.
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 6.366, more than 3.5 percent weaker from the midpoint.
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