SHANGHAI: China's yuan eased slightly on Wednesday, after a weaker-than-expected midpoint fixing, while trading was mostly tepid ahead of the year-end holidays. The People's Bank of China (PBOC) set the midpoint rate at 6.3703 per dollar prior to market open. That was firmer than the previous fix of 6.3729 but weaker than a Reuters estimate of 6.369.
Analysts said it was an indication that policymakers want to deter speculative bets for a firmer yuan.
In the spot market, the yuan opened at 6.3711 per dollar and was changing hands at 6.3728 at midday, 12 pips weaker than the previous late session close.
"With overseas holidays nearing, the willingness to trade in forex markets has generally slipped. We expect the yuan to trade sideways in a narrow range in the short term," said analysts at China Construction Bank.
With the Lunar New Year starting on Feb. 1, Ming Ming, head of fixed income research at CITIC Securities, said strong exports and rising demand for foreign exchange settlements in the coming months will continue to support the yuan.
Corporate demand for yuan conversion usually rises from November to January next year, and data showed the corporates are currently "holding FX and waiting", Ming added.
Ming said the dollar could again dominate the yuan's movements after the Lunar New Year as domestic FX settlement demand weakens.
Fitch Ratings expects the yuan to weaken to 6.7 against the dollar by end-2022, with the US Federal Reserve and PBOC policy rates likely to diverge and China's export growth to slow.
Fitch also expects the PBOC to cut the rate on its medium-term lending facility (MLF) in March 2022 amid slowing growth momentum.
Meanwhile, investors are eyeing the impact of the Omicron coronavirus variant. Countries across Europe considered new curbs on movement on Tuesday while US President Joe Biden appealed to all Americans to get vaccinated to fight the fast-spreading variant sweeping the world.
The broad dollar index rose to 96.551 from the previous close of 96.442, while the offshore yuan was trading 0.11% weaker than the onshore spot at 6.3795 per dollar.
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