SHANGHAI: China's yuan weakened against the US dollar on Thursday after the central bank set the midpoint at the lowest level in two weeks and as domestic companies sought greenback amid concerns the local currency could weaken further.
The People's Bank of China set the midpoint rate at 6.8896 per dollar prior to market open, the weakest level since April 12.
Thursday's fixing was 51 pips, or around 0.1 percent, softer than the previous fix, which was set at 6.8845, although traders and analysts say this midpoint is much stronger than their model's predictions of around 6.8967.
The weakness in the yuan midpoint came after US President Donald Trump unveiled a one-page plan on Wednesday proposing deep US tax cuts, but offering no fresh surprises.
"While the US tax reform details remain elusive, the bottom line should be dollar positive," said Stephen Innes, senior trader at OANDA, adding he has seen a move higher for the dollar on regional currencies as dollar demand is starting to perk up.
A trader at a Chinese bank in Shanghai also said corporate dollar demand in the domestic forex market rose in morning trade, which dragged down the spot yuan. Local corporates are concerned the yuan could weaken further, which would make the dollar more expensive.
The spot market opened at 6.8920 per dollar and was changing hands at 6.8967 at midday after hitting a low of 6.8988 at one point, 40 pips weaker than the previous late session close and 0.10 percent softer than the midpoint.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.65, weaker than the previous day's 93.7.
The global dollar index fell to 98.871 from the previous close of 99.045.
The offshore yuan was trading 0.06 percent weaker than the onshore spot at 6.9005 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 7.088, 2.80 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
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