SHANGHAI, July 12 (Reuters) - China's yuan firmed on Wednesday, as the U.S dollar weakened on renewed concerns over President Donald Trump's alleged connection with Russia. Traders also await Fed Chair Yellen's testimony to Congress, and assess the implication of a state media commentary piece on yuan reforms. The People's Bank of China set the midpoint rate at 6.7868 per dollar prior to market open, firmer than the previous fix 6.7983. The spot market opened at 6.7930 per dollar and was changing hands at 6.7881 at midday. The dollar index dropped below the 96 level after emails disclosed Trump's eldest son welcomed help from a Russian lawyer for his father's 2016 election campaign against Hillary Clinton. "In the meantime, the trade theme related to central banks' hawkish shift started to face a reality check," Ken Cheung Kin Tai, Asian FX strategist at Mizuho Bank Ltd wrote, referring to the Bank of Canada's upcoming policy meeting, and Yellen's testimony to Congress. Also attracting traders' attention was a commentary in Financial News, a publication owned by the People's Bank of China, which said Beijing should reduce government intervention in the foreign exchange market, and take steps to widen the floating range of the yuan exchange rate. "We believe that the yuan band widening is back to the reform agenda and is unlikely to take place within this year," Mizuho's Cheung said. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.49, weaker than the previous day's 94.63. The global dollar index fell to 95.544 from the previous close of 95.669. The offshore yuan was trading 0.01 percent away from the onshore spot at 6.7877 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 6.9345, 2.13 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 5:08AM GMT:
Item Current Previous Change PBOC midpoint 6.7868 6.7983 0.17% Spot yuan 6.7881 6.8012 0.19% Divergence from 0.02%
Spot change YTD 2.34% Spot change since 2005 21.93%
Item Current Previous Change Thomson 94.49 94.63 -0.1
Reuters/HKEX CNH index
Dollar index 95.544 95.669 -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
Offshore spot yuan 6.7877 0.01% * Offshore 6.9345 -2.13%
*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 Samuel Shen and John Ruwitch; Editing by Sam Holmes)