Yuan weakens as dollar becomes strong

The spot market opened at 6.6400 per dollar and was changing hands at 6.6444 at midday, 69 pips away from the last close and -0.15 per cent away from the midpoint. The spot rate is currently allowed to trade within a 2 per cent range above or below the official fixing on any given day. The offshore yuan also weakened, while the one-year U.S. dollar offshore yuan swap rose to 1,088.8 points.

Offshore yuan swap points have dropped rapidly in recent weeks in what analysts say is likely a sign of easing yuan depreciation expectations and convergence with falling onshore rates. “In theory, the drop of the swap points mean that the market is pricing in some sort of monetary easing from the Chinese authorities – China onshore rates are also dropping these days,” wrote Zhou Hao, Senior Emerging Market Economist at Commerzbank in Singapore, in a note.

Frances Cheung, Head of Rates Strategy Asia ex-Japan at Societe Generale in Hong Kong, said offshore rates are no longer at extremely high levels. “The tendency for convergence is driving offshore rates lower,” Cheung said.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.12, weaker than the previous day’s 95.13. The global dollar index rose to 95.867 from the previous close of 95.857. The offshore yuan was trading -0.09 per cent away from the onshore spot at 6.6507 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 6.7795, -1.85 per cent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.