SHANGHAI/SINGAPORE: China’s yuan inched lower against the dollar on Friday and looked set for a marginal weekly loss, though the biggest in six weeks, as investors continued to await clues on US monetary tightening as the next trading catalyst.
The weakness in the local currency was tracking the firmer greenback in global markets, as bets for another rate hike by the US Federal Reserve in May firmed, though its gains were capped by soft economic data pointing to a slowing economy.
“The dollar’s movements and the Fed’s policy outlook should continue to guide the yuan,” said a trader at a foreign bank.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8752 per dollar, 235 pips firmer than the previous fix of 6.8987.
In the spot market, the onshore yuan opened at 6.8780 per dollar and was changing hands at 6.8852 at midday, 112 pips softer than the previous late session close.
The yuan looked set to finish the week down around 0.23% to the dollar, its biggest weekly loss since mid-March.
But, currency traders said the yuan has been stuck in a narrow range for nearly two months, with many market participants adopting conservative trading strategies which are further curbing volatility.
“This pair needs to break out of recently established range for greater directional cues,” Maybank analysts said in a note.
“Otherwise, this 6.81-6.93 range could continue to hold.”
China’s yuan inches up, market wary of outlook despite better-than-expected GDP data
Separately, China’s FX regulator told media on Friday that foreign investors increased their holdings of China’s onshore yuan bonds in March, and it expected more capital inflows amid signs of economic recovery.
Traders said they were still wary of developments in Sino-US relations, as any sign of escalations in conflicts could hurt investor sentiment and drag the yuan lower.
By midday, the global dollar index stood at 101.817, while the offshore yuan was trading at 6.8903 per dollar.
The one-year forward value for the offshore yuan traded at 6.7281 per dollar, indicating a 2.41% appreciation within 12 months.
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