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China's yuan eases despite strongest fixing in 9 months

July 21 (Reuters) - China's yuan eased against the U.S. dollar on Friday despite the central bank's strongest midpoint guidance fixing since October and further weakness in the greenback. Before the market opened, China's central bank set the midpoint rate at 6.7415 per dollar, its highest level since Oct. 20, 2016, and 49 pips higher than the previous day's fix. In spot trade, the yuan opened at 6.7575 per dollar and was changing hands at 6.7653 at midday, 73 pips away from the previous late session close and 0.4 percent away from the midpoint. The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day. The yuan looked set for its third consecutive session of losses on Friday. On the week, however, it was on track to firm 0.13 percent, in what would be its second straight week of gains. Traders said the yuan followed the dollar lower after the latter's sell off in the previous session. The dollar index was flat on the day but not far from its overnight low of 94.090, its worst level since August, 2016, after European Central Bank chief Mario Draghi's perceived "hawkish" tone sent the euro soaring. "The market still may be worried about the China-U.S. relationship. I think it has been reflecting that over the past two days and triggering some correction in the CNY exchange rate," said Ken Cheung Kin Tai, Asian FX strategist at Mizuho Bank Ltd. "Also, the CNY fixing right now, though showing some strong renminbi bias by the PBOC, is not enough to support the currency." The United States and China failed on Wednesday to agree on major new steps to reduce the U.S. trade deficit with China, casting doubt over President Donald Trump's economic and security relations with Beijing. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.81, weaker than the previous day's 94.05. The offshore yuan was trading 0.08 percent away from the onshore spot at 6.7602 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 6.885, -2.08 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0511 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.7415 6.7464 0.07% Spot yuan 6.7653 6.758 -0.11% Divergence from 0.35%

midpoint*

Spot change YTD 2.68% Spot change since 2005 22.34%

revaluation

Key indexes:

Item Current Previous Change Thomson 93.81 94.05 -0.3

Reuters/HKEX CNH index

Dollar index 94.29 94.306 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 6.7602 0.08% * Offshore 6.885 -2.08%

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 Rushil Dutta; Editing by Kim Coghill)