Yuan set for worst day in 2 weeks on corporate dollar demand

SHANGHAI: China's yuan eased on Thursday, on course for its worst day in nearly two weeks due to heavy corporate demand for the dollar.

The US currency was largely steady in global markets as doubts over the progress of US tax reforms offset solid inflation data.

Prior to market opening on Thursday, the People's Bank of China set the midpoint rate at 6.6286 per dollar, 23 pips or 0.03 percent weaker than the previous fix of 6.6263 on Wednesday.

Multiple traders said Thursday's official fixing was in contrast to their forecasts, which had priced in a firmer spot yuan the day before.

In the spot market, the onshore yuan opened at 6.6317 per dollar and was changing hands at 6.6379 at midday, 184 pips weaker than the previous late session close and 0.14 percent softer than the midpoint.

Traders said the loss in the yuan was due to heavy corporate dollar buying in morning trade.

"It's approaching the year-end. And the corporate flow was generally dollar buying," said a Shanghai-based trader at a foreign bank.

There is usually higher demand for the greenback from firms and households at the end of the year, but market participants do not expect the yuan to depreciate sharply. Some said the chance of it falling past 6.7 per dollar was very low.

If the yuan ends the late night session at the midday level, it would lose 0.28 percent of its value against the dollar for the day - its worst performance since Nov. 3.

Separately, economists at Goldman Sachs said that the yuan would likely face some downward pressure next year.

"We forecast small CNY depreciation on a trade-weighted basis, implemented opportunistically during any bouts of dollar weakness, and with only modest effects on capital flows given tighter controls," they said in a note on Thursday.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.47, weaker than the previous day's 95.49.

The global dollar index rose to 93.894 from the previous close of 93.813.

The offshore yuan was trading 0.03 percent weaker than the onshore spot at 6.64 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 6.7885, 2.36 percent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.