China's yuan eases, but set for 4th winning week

SHANGHAI, Aug 4 (Reuters) - China's yuan weakened against the dollar on Friday weighed by corporate demand for the greenback, while traders awaited U.S. jobs data later in the global session for clues on the timing of the Federal Reserve's plans for further monetary tightening. The Chinese currency remains on course for the fourth straight winning week. During the month of July, it strengthened around 0.8 percent against the dollar, the first time since 2014 that the yuan gained for three consecutive months. Market watchers attributed recent gains in the yuan to a struggling dollar and Beijing's capital control measures that have flushed out most yuan bears. On Friday, the People's Bank of China set the midpoint rate at 6.7132 per dollar prior to market open, the strongest in nearly 10 months, and firmer than the previous fix of 6.7211. Spot yuan opened at 6.7195 per dollar and was changing hands at 6.7195 at midday, 20 pips weaker than the previous late session close and 0.09 percent softer than the midpoint. If the yuan finishes the late night session at the current level, it would have strengthened around 0.25 percent against the dollar for the week, the fourth straight week of gains. Corporate dollar demand remained heavier than dollar sales in morning trade on Friday, which dragged the spot price lower, said a trader at a Chinese bank. The domestic market is shifting its attention to the U.S. non-farm payrolls report later in the session for clues on the timing of the Fed's future rate hikes and stimulus reduction, which would bring some volatility to the Chinese currency. "Much attention will be directed towards the NFP report on Friday which could open a clean path towards 6.7000 (per dollar)if NFP falls below market expectations," Lukman Otunuga, research analyst at FXTM said in a note on Friday. Despite the recent strength in the Chinese currency, a Reuters poll of more than 60 foreign exchange analysts showed that the yuan is forecast to weaken to 6.85 per dollar in six months and to 6.90 per dollar in a year. Separately, four sources familiar with internal policy discussions told Reuters that China's central bank is considering a widening of the yuan's trading band after a major Communist party meeting this year, a largely cosmetic move that would burnish its reform credentials as official policy focuses on reducing debt. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.82, weaker than the previous day's 93.91. The global dollar index fell to 92.77 from the previous close of 92.839. The offshore yuan was trading 0.06 percent weaker than the onshore spot at 6.7233 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 6.8665, 2.23 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0346 GMT:


Item Current Previous Change PBOC midpoint 6.7132 6.7211 0.12% Spot yuan 6.7195 6.7175 -0.03% Divergence from 0.09%


Spot change YTD 3.38% Spot change since 2005 23.17%


Key indexes:

Item Current Previous Change Thomson 93.82 93.91 -0.1

Reuters/HKEX CNH index

Dollar index 92.77 92.839 -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 6.7233 -0.06% * Offshore 6.8665 -2.23%

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 John Ruwitch; Editing by Jacqueline Wong)