SHANGHAI: China's yuan weakened against the dollars for the second consecutive session on Tuesday after the central bank set the daily guidance rate at a three-week low.
The People's Bank of China (PBOC) set the midpoint rate at 6.1172 per dollar prior to market open, 0.01 percent weaker than the previous fix at 6.1165.
The spot market opened at 6.2038 per dollar and was changing hands at 6.2040 at midday, 0.03 percent weaker than the previous close.
Traders forecast the yuan will continue to remain relatively steady over the next several months as Chinese authorities are eager for a stable currency to support their goal of internationalizing the yuan this year.
Chile's central bank and the PBOC are clearing a path for the use of the Chinese yuan in South America as the two countries look to strengthen their trade relationship.
The offshore yuan was trading 0.00 percent away from the onshore spot at 6.2039 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 6.2465, -2.07 percent away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 percent in either direction, corporates are much warier of using the NDF to hedge given the basis risk inherent in them.
The resulting loss of liquidity in recent years has meant that the NDFs have frequently proven an unreliable measure of market sentiment.
Comments
Comments are closed for this article.