China's yuan was slightly weaker against the dollar by midday on Tuesday, having fluctuated in a narrow range. The People's Bank of China set the midpoint rate at 6.9462 per dollar prior to the market opening, weaker than the previous fix of 6.9459. The spot market opened at 6.9493 per dollar and was changing hands at 6.9500 at midday, 13 pips weaker than the previous late session close.
"Market sentiment was weak as many traders are already on holiday, and overseas markets are very calm," said a Shanghai-based dealer at a foreign bank. Some traders noted that some institutions were taking advantage of low liquidity to make a number of intraday trades and earn quick profits from slight price swings. The daily trading volume hit $23.5 billion at midday, compared with $27.1 billion for the full day of Monday.
Traders said they had not seen any major state-owned banks offering dollar liquidity in morning trade. State-owned banks have regularly sold dollars over the past two months in what traders believe is part of an effort by the authorities to prevent the yuan from depreciating too fast after the currency tumbled to 8-1/2-year lows last month.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.01, firmer than the previous day's 95.98. The global dollar index rose to 103.13 from the previous close of 103.01. The offshore yuan was trading 0.16 percent weaker than the onshore spot at 6.9614 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 7.2455, 4.13 percent softer than the midpoint.
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