SHANGHAI: China's yuan slipped on Friday, pressured by global concerns about a new coronavirus variant identified in South Africa, although sustained corporate demand for the local currency capped losses.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3936 per dollar, 44 pips firmer than the previous fix of 6.3980.
However, the onshore yuan opened at 6.3890 per dollar in the spot market and was changing hands at 6.3917 at midday, 54 pips weaker than the previous late session close.
Despite the slight weakness, the yuan remained on course for a third straight month of gains.
"The yuan's latest performance is independent of dollar's movement on heavy corporate FX selling (into yuan)," said a trader at a foreign bank.
Heavy corporate demand for the yuan has provided consistent support for the Chinese currency in recent months and year-end seasonal demand for various payments is likely to sustain yuan strength, traders said.
Record foreign exchange deposits and an earlier Lunar New Year holiday in 2022 are also likely to help the yuan.
"The peak period for domestic FX settlement should arrive earlier, which will solidify the recent yuan strength," said Marco Sun, chief financial markets analyst at MUFG Bank.
He expects the yuan to trade in a 6.35 to 6.4 per dollar range in the near-term.
The long Lunar New Year holiday, which usually falls in early February, starts in late January next year.
Separately, new coronavirus cases have prompted risk-off sentiment in domestic markets after a handful of local COVID-19 cases in eastern China shut down some tourist and public transport activity, amid Beijing's entrenched zero tolerance for the virus.
In light of the new outbreaks, the benchmark 10-year treasury futures for March delivery gained 0.24% on Friday morning, with yields on 10-year government bond falling about 2 basis points.
By midday, the broad dollar index traded at 96.715, while the offshore yuan was trading at 6.394 per dollar.