China's yuan eased against the dollar on Tuesday, as signs of softening trade tensions between the world's two largest economies pushed US Treasury yields higher, which supported the greenback. The People's Bank of China lowered its official yuan midpoint to reflect a rise in the greenback, which guided the local currency lower.
However, traders said the yuan was stuck in a tight range of around 50 pips as doubts over further strength in the greenback kept some investors sidelined. Markets have switched their attention to Chinese vice Premier Liu He's visit to Washington from May 15 to 19 for a second round of trade negotiations, and there have been signs recently of some easing in tensions.
"The confirmation has raised hopes for some trade solutions and fairly eased market concerns," Gao Qi, FX strategist at Scotiabank said in a note. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.64, firmer than the previous day's 98.59. The offshore yuan was trading 0.10 percent stronger than the onshore spot at 6.34 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 6.4465, 1.52 percent weaker than the midpoint. Yuan traders said China is unlikely to use the currency as a tool in the trade talks but the progress is likely to bring some volatility to the Chinese unit.
The dollar inched higher against a basket of currencies on Tuesday, having pulled up from its lowest level in more than a week, tracking the move in US bond yields higher. Prior to market opening, the PBOC set the midpoint rate at 6.3486 per dollar, 141 pips, or 0.22 percent weaker than the previous fix 6.3345. In the spot market, the onshore yuan opened at 6.3449 per dollar and was changing hands at 6.3461 at midday, 92 pips weaker than the previous late session close.
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