China's yuan firmed against the dollar on Monday after the central bank set a much stronger midpoint than the market had expected, traders said. The People's Bank of China set the midpoint rate at 6.9312 per dollar prior to the market opening, compared with traders' expectations of around 6.95. Monday's official guidance rate was 196 pips, 0.28 percent firmer than the previous 6.9508.
"We don't know why the midpoint was set at that level, but it has dampened market sentiment," said a Shanghai-based trader at a foreign bank, adding that the deviation of more than 100 pips from market forecast has discouraged investors from testing lows in the yuan.
The spot market opened at 6.9398 per dollar and was changing hands at 6.9445 at midday, 65 pips firmer than the previous late session close and 0.19 percent softer than the midpoint. The offshore yuan was trading 0.02 percent firmer than the onshore spot at 6.9430 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 7.2569, 4.49 percent weaker than the midpoint.
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