Yuan weakens

China's yuan weakened against the dollar on Thursday on strong corporate demand for the greenback, forcing state-owned banks to offer dollar liquidity to keep the Chinese currency from falling too fast, traders said. Major state-owned banks were seen selling dollars in the onshore foreign-exchange market, according to three traders. They said the selling was a bid to support the yuan after it weakened past 6.92 to the dollar in early trade.
Prior to market open, the People's Bank of China set the midpoint rate at 6.9125 per dollar, weaker than Wednesday's fix of 6.9032. The spot market opened at 6.9131 per dollar and was changing hands at 6.9188 at midday after hitting a low of 6.9207, the weakest since mid-January. The midday level was 53 pips weaker than the previous late session close and 0.09 percent softer 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 95.06, firmer than the previous day's 94.94. The global dollar index rose to 102.2 from the previous close of 102.07, not far from a March 2 peak of 102.26, level unseen since January 11.The offshore yuan was trading 0.12 percent weaker than the onshore spot at 6.9268 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 7.165, 3.52 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The traders said that before the state banks entered the market - which halted the yuan's slide - heavy dollar purchases by companies plus a rising greenback in global markets weighed on the Chinese currency. "Companies' willingness to buy dollars was quite strong today. The quicker the yuan depreciates, the more dollars companies purchase," said one trader at a foreign bank in Shanghai.