SHANGHAI, March 6 (Reuters) - China's yuan inched higher against the dollar on Friday but remained on course to snap a record weekly winning streak, and post its biggest slump in more than a year, reflecting a broadly firmer greenback in light of the widening Middle East conflict.
The decision by the People's Bank of China, the nation's central bank, to remove the foreign exchange risk reserves for forward contracts also encouraged corporate dollar demand in the derivatives market.
The onshore yuan
fetched 6.9005 per dollar as of 0400 GMT, up 0.17% from the previous close.
If it finishes the late night session at the midday level, it would have lost 0.54% to the dollar, snapping 13 straight weeks of gains, the longest since 2012. It would also cap the biggest weekly decline since February 2025.
Its offshore counterpart traded at 6.9041 per dollar.
"In a vacuum, the stronger dollar should help soften some of the recent yuan appreciation momentum," said Lynn Song, chief economist for Greater China at ING.
Prior to market opening, the PBOC set its midpoint rate at 6.9025 a dollar, and 27 pips weaker than a Reuters' estimate of 6.8998. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
However, some market analysts expect sustained yuan strength in the mid- to long-term on the view that the impact from the Middle East war would be short-lived.
"We look for USD/CNY to fall further especially in the first half of 2026 if first, exports continue to sustain its growth, second, tourism arrivals rise, and third, equity-related inflow continue to remain supportive of the yuan," Maybank analysts said in a note.
"However, the third factor continues to play a decisive role in driving the yuan higher given its stronger correlation with the yuan."
A Reuters poll this week showed that respondents remained firmly bullish on the yuan, the highest among its emerging Asian peers, even as the Middle East war stokes worries over the crippling effect high energy prices.
In other potential catalysts, market participants will closely monitor a press conference linked to the economy on the sidelines of the annual parliament session later in the day. China's top economic and financial officials are scheduled to speak.
The National People's Congress opened on Thursday. Beijing set its economic growth target for 2026 at 4.5%-5%, a slight downgrade from the 5% pace achieved last year, which leaves room for greater efforts to rebalance the economy.
(Reporting by Shanghai NewsroomEditing by Shri Navaratnam)
