China's yuan weakened slightly against the dollar on Monday, after the central bank set a weaker mid-point following last week's volatility, when the yuan firmed about 1 percent before falling back amid a liquidity squeeze in the offshore market. Monday's official mid-point, guided by the People's Bank of China, was set at 6.9262 per dollar.
The fix was 594 pips, or 0.86 percent, weaker than the reference rate on Friday, its biggest one-day percentage drop since June. Friday's fix was 6.8668 per dollar. Still, Monday's fixing was firmer than the market had expected, traders said, with forecasts around 6.9450 per dollar. Monday's midpoint fixing drew strong interest after last week's sharp movements, during which the offshore yuan had a record weekly rise. "Today's fixing was so suppressed," said one trader at a foreign bank in Shanghai.
Yuan overnight interbank rates soared in Hong Kong last week, pushing the offshore yuan to its strongest levels since January 2016 and creating a knock-on effect on the onshore yuan. Interbank rates for the offshore yuan fell sharply to 14.05 percent on Monday, from Friday's 61.33 percent. The falling yuan has raised concern among policymakers over capital outflows, and on Saturday the government said foreign exchange reserves fell to near six-year lows by the end of December.
Reserves held just above the critical $3-trillion level, however, after authorities stepped in to support the weakening yuan ahead of US President-elect Donald Trump's inauguration. The offshore yuan was trading 0.87 percent firmer than the onshore spot, at 6.8750 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 7.1973, 3.77 percent weaker than the midpoint.
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