China's yuan firmed slightly against the dollar on Monday, buoyed by last week's purchases by state-owned banks, stricter controls on funds flowing overseas and tighter liquidity in onshore and offshore money markets. Reiterations from Chinese officials that the yuan should be kept stable also reinforced perceptions that authorities were
intent on trying to stabilise the currency against the dollar for now, after it recently plumbed more than 8-year lows. "It is very expensive to short the yuan in offshore markets now and the offshore yuan has also become stronger than onshore yuan," said a trader at a Chinese bank in Beijing. "We've noticed this new phenomenon and are studying our trading strategy," the trader said.
The People's Bank of China set the midpoint rate at 6.887 per dollar prior to the market open, weaker than the previous fix of 6.8794. In the spot market, the yuan opened at 6.8870 per dollar and was changing hands at 6.8895 at midday, 5 pips softer than the previous late session close and 0.04 percent away from the midpoint. Hong Kong's overnight yuan borrowing rate was fixed at the highest level in more than two months again on Monday, rising to 12.38 percent from 7.16 percent on Friday.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.82, firmer than the previous day's 95.79. The global dollar index rose to 101.46 from the previous close of 100.77, supported by expectations of a US rate hike later next week. The offshore yuan was trading 0.07 percent away from the onshore spot at 6.8844 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 7.1005, -3.01 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
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