China's yuan edges up on firmer fixing, but on track for a losing week

SHANGHAI, July 7 (Reuters) - China's yuan firmed against the U.S. dollar on Friday after the central bank fixed a stronger guidance for the first time this week, but the Chinese currency remained on course to for a losing week. Prior to market opening, the People's Bank of China set the midpoint rate at 6.7914 per dollar, firmer than the previous fix at 6.7953. From Monday through Thursday, the midpoint fixing was weaker than the previous day. In the spot market, the yuan opened at 6.7970 per dollar and fell to a low of 6.8037 before bouncing to 6.8001 at midday, 34 pips firmer than the previous late session close but 0.13 percent weaker than the midpoint. If the yuan finishes the day at the current level, it will soften around 0.3 percent against the dollar for the week, compared with a 0.8 percent gain in the previous one. Traders said the spot market was balanced on Friday with some corporate dollar purchases, which were offset by greenback sales by major state-owned banks. Also, they said, market players have increased their long yuan positions. One trader at a Chinese bank in Shanghai said that recently state banks have stepped into market and sold dollars when the spot rate was around 100 pips weaker than the same day's fixing - in what traders believe is part of an official effort to stabilize the yuan and flush out overly bearish positions in it. Market has switched their focus to China's June foreign exchange reserves data, which is due for release late on Friday. A Reuters poll saw reserves edging up to $3.06 trillion, rising for a fifth consecutive month as capital curbs and a weakening dollar helped staunch money outflows. Some market watchers expected the yuan to remain steady but with an appreciation bias the rest of this year. "Owing to substantial interest rate differentials, Chinese firms with large export receipts will be willing to convert their foreign currency deposits into RMB," Li-Gang Liu, chief China economist at Citigroup in Hong Kong said in a note Thursday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.55, weaker than the previous day's 94.61. The global dollar index rose to 95.904 from the previous close of 95.802. The offshore yuan was trading 0.02 percent weaker than the onshore spot at 6.8013 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 6.965, 2.49 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0409 GMT:


Item Current Previous Change PBOC midpoint 6.7914 6.7953 0.06% Spot yuan 6.8001 6.8035 0.05% Divergence from 0.13%


Spot change YTD 2.16% Spot change since 2005 21.71%


Key indexes:

Item Current Previous Change Thomson 94.55 94.61 -0.1

Reuters/HKEX CNH index

Dollar index 95.904 95.802 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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.8013 -0.02% * Offshore 6.965 -2.49%

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 Richard Borsuk)