China's yuan weakens

China's yuan weakened against the dollar on Monday as hopes of major US tax reforms continued to boost the greenback. The People's Bank of China set the official yuan midpoint rate at 6.8898 per dollar prior to the market open, the weakest level in nearly four weeks and 79 pips softer than the previous fix at 6.8819. Onshore and offshore yuan converged intraday, with the onshore spot briefly trading firmer than its offshore counterpart for the first time since early January.
As of 0830 GMT, the spread between on- and offshore stood at 28 pips. The offshore yuan strengthened and was trading 0.04 percent firmer than the onshore spot at 6.8765. The dollar rebounded late last week after US President Donald Trump's promise on Thursday of a "phenomenal" tax reform plan over the next two or three weeks continued to support the dollar against most of its major rivals. It extended gains to a near two-week high on Monday.
The spot yuan opened at 6.8910 per dollar and settled at 6.8793 at 0830 GMT, 18 pips weaker than the previous late session close but 0.15 percent firmer than the midpoint. A dealer at a Chinese bank in Shanghai said he did not expect huge volatility in the yuan ahead of the annual session of China's parliament, which takes place in early March. Chinese policymakers usually keep a firm grip on the currency ahead of major events on the political calendar.
The latest China Foreign Exchange Trade System (CFETS) data showed that the index for the yuan's value based on the market's trade-weighted basket was unchanged at 94.03 on Friday compared with a week earlier. In the money markets, primary money rates were mixed after the central bank resumed open market operations on Monday, after skipping reverse repurchase agreement deals for six straight trading days. The PBOC injected 100 billion yuan ($14.55 billion) on Monday, compared with 190 billion yuan of repos maturing on the same day.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.06, weaker than the previous day's 95.29. The global dollar index edged down to 100.64 as of 0830 GMT, compared with the previous close of 100.8. 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 7.11, 3.10 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.