China's yuan firms on stronger midpoint after dollar weakens

SHANGHAI: China's yuan firmed against the US dollar on Thursday after the central bank fixed a stronger guidance level, following weakness in the greenback overnight in the overseas markets.

Traders said that better-than-expected China June trade data, announced on Thursday morning, did not affect the forex market.

Prior to the market opening, the People's Bank of China set the midpoint rate at 6.7802 per dollar, its highest level since July 3 and firmer than the previous fix of 6.7868.

The stronger yuan midpoint reflected broad dollar weakness after US Federal Reserve Chair Janet Yellen said US interest rates hikes would be gradual and that the Fed may not be able to raise rates by "all that much".

The global dollar index, a gauge that measures dollar strength against six other currencies, stood at 95.623 at midday, after hitting a 12-day low of 95.511 on late Wednesday, compared with the previous close of 95.761.

Thursday's firmer fixing guided the yuan higher in the spot market. It opened at 6.7840 per dollar and was changing hands at 6.7796 at midday, 92 pips firmer than the previous late session close and 0.01 percent firmer than the midpoint.

The offshore yuan also strengthened against the US unit in Thursday morning trade. At midday, it was 0.03 percent firmer than its onshore counterpart, at 6.7777 per dollar.

"The weakness in the global dollar index was the key driver for the domestic market today," a Shanghai-based trader at a Chinese bank.

Another trader at a Chinese bank said seasonal corporate dollar demand remained and described current prices as "appropriate" for clients who have urgent needs to purchase the US currency.

Market players speculated on a potential widening of the yuan trading band after a PBOC-owned publication mentioned the topic on Wednesday. But most do not expect such a move this year.

The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day.

On Thursday, China's central bank injected 360 billion yuan ($53.06 billion) in medium-term loans into the financial system on Thursday, a fresh sign authorities aim to maintain financial stability while continuing a deleveraging campaign.