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China's yuan firms relative to late close, although midpoint set weaker

SHANGHAI, July 10 (Reuters) - China's yuan on Monday firmed against the U.S. dollar relative to where the Chinese currency ended Friday night, even though the greenback has strengthened since better-than-expected June U.S. jobs data. Traders noted that the midday level, while stronger than the late Friday close, was weaker than where the yuan was at the 4.30 pm official close of trading on Friday. China June inflation data, released on Monday, had no impact on the thinly traded yuan, they said. Prior to Monday's market opening, the People's Bank of China set the midpoint rate at 6.7964 per dollar, weaker than Friday's fix of 6.7914. The spot market opened at 6.8013 per dollar and was changing hands at 6.8013 at midday, 54 pips stronger than the previous late session close of 6.8067 but 0.07 percent weaker than the midpoint and 0.03 percent weaker than Friday's Shanghai close of 6.7995. As of midday, daily trading volume was only $7.687 billion, compared with Friday's full-day volume of $25.505 billion. "Corporate dollar demand was tepid, and market participants were not active," said a Shanghai-based trader at a foreign bank. The trader said market participants were trying to figure out the yuan direction amid recent volatility and frequent injection of dollar liquidity by state banks. Major state-owned banks have sold dollars in the onshore spot market regularly over the past few months to prevent the yuan from sinking in what traders believe is part of an official effort to stabilise the Chinese currency and flush out overly bearish yuan positions. On Monday, multiple traders said they had not seen any such dollar selling in the onshore spot market. Another trader at a Chinese bank expected the yuan to hover at around 6.80 per dollar in the near term. Last week, China's yuan weakened nearly 0.4 percent against the U.S. dollar, the worst weekly performance since early March. But its value based on a trade-weighted basket edged up to 93.52 from 93.29 a week earlier, the highest level since mid-March, according to official data from the China Foreign Exchange Trade System (CFETS). The CFETS publishes index figures on a weekly basis. Separately, China's foreign exchange reserves edged up in June for a fifth consecutive month, official data showed on Friday, in line with market expectations, as capital outflows eased in the face of tighter regulations and the dollar's rally paused. Reserves rose $3.2 billion during June to $3.057 trillion, in line with economists' forecast in a Reuters poll.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.57, flat with the previous day's 94.57. The global dollar index rose to 96.012 from the previous close of 96.008. The offshore yuan was trading 2 pips weaker than the onshore spot at 6.8015 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 6.9625, 2.39 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0405 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.7964 6.7914 -0.07% Spot yuan 6.8013 6.8067 0.08% Divergence from 0.07%

midpoint*

Spot change YTD 2.14% Spot change since 2005 21.69%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.57 94.57 0.0

Reuters/HKEX CNH index

Dollar index 96.012 96.008 0.0

*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 6.8015 0.00% * Offshore 6.9625 -2.39%

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)