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China's yuan firmed against the dollar on Wednesday after the central bank set a stronger midpoint for the second day, and market players bet on more gains ahead of a G20 leaders' summit in early September.
China typically holds the yuan steady before and during major diplomatic events. Authorities had allowed the currency to slip to near 6-year lows to the dollar earlier this month but state-run banks moved in to steady it before a meeting of G20 finance ministers and central bank governors in Chengdu last weekend.
The People's Bank of China set the midpoint rate at 6.6671 per dollar prior to the market open on Wednesday, firmer than the previous fix of 6.6778.
Spot yuan opened at 6.6739 and was changing hands at 6.6710 at midday, 37 pips away from the previous late session close and 0.06 per cent away from the midpoint.
The spot rate is allowed to trade with a range 2 per cent above or below the official fixing on any given day.
"The yuan is likely to continue to strengthen over the foreseeable future,” said Zhou Hao, a senior economist at Commerzbank in Singapore.
"On one hand, it would help deliver the idea of two-way volatility to the market; on the other hand, it is of China's interest to ease the capital outflow concerns especially before the G20 summit.”
Economists at HSBC have noted China's currency moves have often followed a pattern that it calls “ease-then-squeeze", with the central bank allowing the yuan to slip over time then stepping in to curb losses if speculation on further depreciation grows too strong.
But HSBC still sees the currency dipping to 6.90 by year-end. The strengthening of the Chinese currency in the past few days is also in line with the general trend of other Asian currencies.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.18, firmer than the previous day's 95.85.
The global dollar index rose to 97.284 from the previous close of 97.156.
The offshore yuan was trading -0.09 per cent away from the onshore spot at 6.6771 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 6.833, -2.43 percent away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
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