Yuan recovers against dollar

China's yuan erased early losses against the dollar and edged up on Wednesday, as traders doubted that the greenback's rally which took the Chinese currency to a one-week low will continue. The dollar hovered near a five-month high, as a surge in the benchmark 10-year Treasury yield above 3 percent reignited a rally that lost steam last week.
The dollar index, measuring it against six other currencies, was 93.261 at midday after reaching 93.457 overnight, its highest since December 22. After the dollar's overnight gains, the People's Bank of China set the official yuan midpoint rate at 6.3745 per dollar, 259 pips or 0.4 percent weaker than Tuesday's previous fix of 6.3486.
The yuan guidance rate was the lowest since May 10, and the biggest one-day weakening in percentage terms since May 2. In the spot market, the onshore yuan opened at 6.3770 per dollar and fell to 6.3808 at one point, the softest since May 9. At midday, the spot rate recovered all the losses and was changing hands at 6.3683, 42 pips firmer than the previous late session close and 0.10 percent stronger than the midpoint.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.75, firmer than the previous day's 98.61. The offshore yuan was trading 0.14 percent firmer than the onshore spot at 6.3597 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 6.473, 1.52 percent weaker than the midpoint. Traders said the spot yuan face some resistance at around 6.38 per dollar level. They added that some investors, not convinced the dollar would strengthen again, liquidated long dollar positions.
Ken Cheung, senior FX strategist at Mizuho Bank in Hong Kong, said that while rising US yields broadly put Asian emerging currencies under pressure, the yuan showed resilience. "Taking account into China's current account surplus and persistent capital inflow amid RMB internationalization, the RMB remains fundamentally strong against the currencies of its major trading partners," Cheung said in a note. Markets are also paying attention to Chinese Vice Premier Liu He's May 15-19 visit to Washington for a second round of trade negotiations.