SHANGHAI: The yuan edged lower on Monday despite the central bank setting a firmer official guidance rate, as traders reported robust dollar demand from industrial companies.
"There was a bout of heavy dollar buying right after the trade open," said a trader at a Chinese commercial bank in Shanghai. "And the trend continued while state banks were believed to stay on the sidelines."
As the economy slows, damping investment opportunities at home, Chinese companies have rushed to buy overseas assets this year and that has increased their dollar demand in the domestic market, traders said.
The People's Bank of China set the midpoint rate at 6.4787 per dollar prior to market open, 0.19 percent firmer than the previous fix of 6.4908, reflecting Friday's dollar slide.
The dollar index that tracks the greenback against a basket of major currencies had slumped 0.2 percent on Friday before recovering some losses in Monday's Asian trade.
The spot market opened at 6.4770 per dollar and was changing hands at 6.4812 at midday, easing 0.16 percent from the previous close.
The latest China Foreign Exchange Trade System (CFETS) data showed that the index for the yuan's value based on the market's trade-weighted basket stood at 97.38 last week, the lowest on record. The index was first published by CFETS in December 2015 setting the yuan's value at 100 at the end of 2014.
On Monday, the onshore yuan strengthened 0.1 percent against the euro by midday at 7.3130. It eased 1.2 percent against the Japanese yen, hovering at 6.0003 to 100 yen.
At the G20 meeting in Washington last week, PBOC governor Zhou Xiaochuan said China's foreign exchange market had stabilized. The yuan's recent trend reflected market supply and demand, and it had held steady against a basket of currencies.
On Monday, the offshore yuan was trading 0.15 percent softer than onshore spot at 6.491 per dollar. The spread between the offshore yuan and its onshore counterpart seemed to have increased in the past week, traders said.
Offshore one-year non-deliverable forwards contracts , considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.668, or 2.84 percent weaker than the midpoint.
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