The yuan eased on Tuesday, pressured by robust dollar demand from corporate clients as the market turns its attention to the U.S. Federal Reserve's June meeting starting later in the day. The People's Bank of China set the midpoint rate at 6.5791 per dollar prior to the market open, 0.02 percent firmer than the previous fix 6.5805, in response to the dollar's slump on Monday. Spot yuan opened at 6.5835 per dollar and was changing hands at 6.5879 at midday, easing 0.06 percent from the previous close, with traders saying the overnight close of 6.5842 had already factored in the dollar's weakness. Traders widely expect the Fed to leave U.S. interest rates on hold at the end of its two-day meeting, which could help the Chinese currency defend the critical support level of 6.60 in the short term. The yuan has not breached 6.60 in over 5 years. "I do believe that the market is capable of handling a Fed rate hike right now, without spiralling out of control," said a trader at a Chinese commercial bank, one of the 14 contributors that provided prices in the yuan fixing mechanism. "The PBOC has asked our bank whether the market is up for a Fed rate increase, which shows their main long-term concern in the market is potential risks from the Fed." The offshore yuan was trading 0.14 percent softer than the onshore spot at 6.5970 per dollar. China's May loan and money supply data is expected to be released later in the day. The yuan market at a glance: ONSHORE: Item Current Previous Change PBOC midpoint 6.5791 6.5805 0.02% Spot yuan 6.5879 6.5842 -0.06% Divergence from 0.13% midpoint* Spot change YTD -1.43% Spot change since 2005 25.63% revaluation *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.5970 -0.14% * Offshore 6.7390 -2.37% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint.
original source: http://www.dailymail.co.uk/wires/reuters/article-3640198/Chinas-yuan-inches-lower-dollar-demand-ahead-Fed-meeting.html