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China's yuan set for worst week since March on rising corporate dollar demand

SHANGHAI, June 23 (Reuters) - China's yuan softened against the U.S. dollar on Friday and is set for its worst week in more than three months, dampened by weaker guidance and rising corporate demand for the greenback. In late May, the Chinese authorities let the yuan appreciate by more than 1 percent, a sizable leap for a currency that normally trades within a wafer-thin range and shed 6.5 percent to the dollar last year. However, it has surrendered more than half of the gains it made late last month and in early June. Traders said recent falls in spot yuan were due to rising seasonal corporate dollar demand, adding that the undetermined "counter-cyclical factor" had not strengthened the midpoint much. The People's Bank of China set the midpoint rate at 6.8238 per dollar prior to market open, the weakest since May 31, softer than the previous fix 6.8197. In the spot market, the yuan opened at 6.8351 per dollar and was changing hands at 6.8422 at midday, 54 pips weaker than the previous late session close and 0.27 percent softer than the midpoint. For the week, the yuan was down 0.41 percent against the dollar. If these losses are sustained by the close of trade, this week will be the yuan's worst since the one ended March 3. "June is a traditional period for high dollar demand, company dividend distributions and oil firm purchases for their businesses all pushed the (USD/CNY) prices higher," said a trader at a regional bank in Shanghai. Multiple traders noted that major state-owned banks were selling dollars to keep the spot yuan at firmer-than-6.83-per-dollar levels in late afternoon trade this week. Two traders said they had not seen big banks offering dollar liquidity in morning trade on Friday, adding they would be wary of the emergence of the state banks later in the afternoon. State-owned banks have sold dollars in the forex market regularly since late last year in what some traders believe is part of official efforts to prop up the Chinese currency. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.14, weaker than the previous day's 94.28. The global dollar index fell to 97.457 from the previous close of 97.593. The offshore yuan was trading 0.03 percent weaker than the onshore spot at 6.8444 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 7.0155, 2.73 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0359 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.8238 6.8197 -0.06% Spot yuan 6.8422 6.8368 -0.08% Divergence from 0.27%

midpoint*

Spot change YTD 1.53% Spot change since 2005 20.96%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.14 94.28 -0.2

Reuters/HKEX CNH index

Dollar index 97.457 97.593 -0.1

*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 6.8444 -0.03% * Offshore 7.0155 -2.73%

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. .

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong)