Yuan bounces from 3-week low, market eyes Sino-US relations

SHANGHAI: China's yuan bounced from a three-week low on Friday, underpinned by broad dollar weakness.

Traders expect corporate dollar demand and developments in Sino-US relations to bring some volatility to the Chinese currency in the near term.

The dollar suffered its biggest loss in 10 days on Friday after disappointing US labour market data bruised optimism for a speedy recovery from the COVID-19 pandemic.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4624 per dollar, 88 pips or 0.14% weaker than the previous fix of 6.4536.

In the spot market, the onshore yuan opened at 6.4731 per dollar and was changing hands at 6.4716 at midday, 172 pips firmer than the previous late session close.

The spot yuan hit a low of 6.4888 a day earlier, the weakest level since Jan. 28.

Several traders said the sudden weakness in the Chinese currency that emerged late Thursday was largely driven by seasonal dollar purchases by oil firms to settle their payments.

They expected heavier corporate dollar demand as business picked up again after the long Lunar New Year holiday.

Separately, market attention has shifted to Sino-US relations, which have been a major factor influencing the yuan over the past few years.

Joe Biden will attend his first meeting as US president with Group of Seven leaders on Friday to discuss plans to defeat the novel coronavirus, reopen the battered world economy and counter the challenge posed by China.

"The market will be closely watching the G7 summit to reassess its earlier position that a Biden administration would be better for US-China relations," analysts at DBS said in a note.

The global dollar index stood at 90.639 by midday, when the offshore yuan was trading at 6.4645 per dollar.