China's yuan firms on dollar weakness after Powell testimony

SHANGHAI: China's yuan inched up on Wednesday as the dollar slipped against riskier currencies after the head of the Federal Reserve reiterated the US central bank's accommodative monetary policy stance, fuelling optimism about the global economic recovery.

The People's Bank of China set the midpoint rate at 6.4615 per dollar prior to market open, 99 pips weaker than the previous fix of 6.4516.

The spot market opened at 6.4535 per dollar and was changing hands at 6.4614 at midday, 26 pips firmer than the previous late session close.

The offshore yuan was trading at 6.4614 per dollar.

Traders said the onshore yuan would continue to trade in a range between 6.45 per dollar and 6.5 per dollar.

"Chances are low for any big moves in the yuan now, as there is a lack of direction in the dollar for the short term," said a trader at Chinese bank.

The dollar slipped to a three-year low against the British pound and nursed losses against commodities currencies on Wednesday as investors increased bets that a global economic recovery will boost riskier assets.

US Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low and the Fed will keep buying bonds to support the US economy, which many traders say is negative for the dollar in the long-term.

Some analysts said the yuan would face headwinds given changes in the China-US bond yield spread.

Bruce Yam, a forex strategist at Everbright Sung Hun Kai, noted the interest rate spread between China and the United States was narrowing as US treasury yields rose, which could pressure the yuan.

Market participants largely looked past the latest headlines on Sino-US relations.

On Tuesday, US President Joe Biden and Canadian Prime Minister Justin Trudeau pledged to work together to counteract Chinese influence.

Wally Adeyemo, Biden's nominee as deputy Treasury secretary, said that same day that Washington should work with allies to hold China accountable to international rules to ensure a level playing field for companies in the United States and elsewhere.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.07, firmer than the previous day's 96.01.

The global dollar index fell to 90.082 from the previous close of 90.117.

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 6.6364, 2.64% away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.