HONG KONG, Feb 6 - The yuan traded with a subdued tone in early Asian hours on Friday but was still set to record an extended run of weekly gains against the U.S. dollar. At 03:55 GMT the onshore spot rate was 6.9396 per dollar, a 0.05% decline in that session after moving in a narrow band between 6.9390 and 6.9418. The offshore yuan changed hands at 6.9388 per dollar, registering roughly a 0.05% increase in Asia.
Across the week the yuan has strengthened by about 0.2% versus the dollar, putting it on course for its eleventh straight week of appreciation - a streak not seen since early 2013. Market participants and analysts pointed to several supporting factors for the currency's resilience: a relatively weak U.S. dollar, robust export flows and normal seasonal demand for foreign exchange.
Analysts at ICBC noted the influence of those intra-period flows in a client note, saying: "The FX conversions driven by favourable trends and seasonal holiday factors continue to support the RMB exchange rate." They also cautioned that the speed of further appreciation could ease, citing short-term increases in U.S. dollar volatility, holiday market closures and lighter trading volumes.
Before trading opened onshore, the People's Bank of China set the daily midpoint rate at 6.9590 per dollar. That midpoint was 73 pips weaker than an estimate and represented a further easing from the 32-month high reached earlier in the week. Under the reference-rate regime, the spot yuan is permitted to trade within a 2% band either side of the daily midpoint.
Liquidity indicators onshore showed tighter dollar conditions this week. The CFETS U.S. Dollar Lending Capital Sentiment Index - a gauge of onshore dollar liquidity - reached its tightest reading since August 2023. Traders pointed to onshore institutions wiring funds offshore to meet margin calls following recent volatility in precious metal markets as one factor contributing to that tightness.
The broader dollar picture was mixed. The dollar index, which measures the greenback against six major currencies, fell 0.1% to 97.85. Yet the greenback remained in a position to post its best weekly performance since November, amid sharp declines in gold and silver and pressure in equities linked to concerns over AI-related spending.
Key onshore vs offshore measures and short-term rates
- Overnight dollar/yuan swap: onshore -13.80 pips vs. offshore -13.80 pips
- Three-month SHIBOR: 1.6% vs. three-month CNH HIBOR: 1.8%
Levels at 03:54 GMT
| Instrument | Current | Up/Down(-) | % Change | Day's Low | Day's High |
|---|---|---|---|---|---|
| Spot yuan | 6.9396 | -0.02 | 0.78 | 6.9390 | 6.9418 |
| Offshore | 6.9392 | 0.03 | 0.56 | 6.9365 | 6.9397 |
Overall, the near-term outlook appears balanced. Favourable trade receipts and seasonal FX conversions have been the primary drivers of recent yuan strength, while tighter onshore dollar liquidity and intermittent dollar volatility present potential headwinds to the pace of appreciation. Market participants will likely watch holiday-related liquidity shifts and any movements in precious metals and equity markets as indicators of broader risk sentiment that could affect currency flows.