SHANGHAI: China's yuan eased against the dollar to a one-week trough in late trade on Thursday after the central bank fixed a much weaker midpoint in response to the greenback's rebound this week.
The dollar index against a basket of six major currencies climbed to a one-week high at 96.318 in early European trade, boosted by hawkish comments by US Federal Reserve officials on the possibility of more interest rate hikes this year.
Traders said a fall in China's stock market on Thursday after dozens of brokerages resumed short selling business was not related to the movements of the Chinese currency.
The business had been suspended since June, when the equity market started suffering heavy losses. One factor hurting the market in the second half was steep depreciation of the yuan.
The People's Bank of China set the midpoint rate at 6.5150 per dollar prior to Thursday's market open, easing 0.33 percent from the previous fix of 6.4936.
That marked the PBOC's biggest daily weakening of the midpoint since Jan. 7.
The spot market was trading at 6.5153 per dollar at 0830 GMT in late Shanghai trading.
"The surprising weakening of the midpoint has fueled speculations that the PBOC has again acted ahead of the curve as the market has started to price in more possibility of a Fed rate hike in April," said Zhou Hao, senior EM economist at Commerzbank AG in Singapore.
Traders also said they were a bit confused about the central bank's midpoint setting because they had been eyeing the dollar index for reference but Wednesday's firmer midpoint was not in line with the dollar's gradual rise in the week.
"Yesterday was a bit odd, but the overall trend I believe is to follow how the dollar moves," said a dealer at a Chinese commercial bank in Shanghai.
Reuters reported on Wednesday that China is engineering a steady depreciation of its yuan in a move that has gone largely unnoticed because its weakness this year has come against the currencies of trading partners rather than the dollar.
Onshore one-year yuan/dollar deliverable forwards were quoted at 6.5900 on late Thursday, implying expectations of a slightly bigger depreciation over 12 months than seen in Wednesday's close of 6.5880.
The offshore yuan was trading 0.1 percent weaker than the onshore spot at 6.5215 per dollar at 0830 GMT in late Shanghai trading.
Offshore one-year non-deliverable forwards contracts , considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.701, or 2.78 percent weaker from the midpoint.
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