SHANGHAI, Aug 9 (Reuters) - China's yuan firmed against the U.S. dollar on Wednesday, setting it up for a third straight day of gains on the back of a stronger fixing and continued corporate dollar selling. Prior to market opening, the People's Bank of China set the yuan midpoint at 6.7075 per dollar, the strongest level since Oct. 10 2016, reflecting strength in the Chinese currency rather than U.S. dollar weakness, traders said. Wednesday's official guidance was 109 pips or 0.16 percent firmer than the previous fix at 6.7184 per dollar. Market players attributed the firmer fixing to gains in the spot yuan a day earlier. Spot yuan climbed to new 10-month highs on Wednesday. It opened at 6.7070 per dollar and was changing hands at 6.6929 at midday, 151 pips firmer than the previous late session close and 0.22 percent stronger than the midpoint. Companies with dollar positions turned cautious as the yuan strengthened to firmer than 6.7 per dollar. They dumped dollars to reduce exchange losses which pushed the spot rate higher, which also happened on Tuesday, a trader at a Chinese bank said. Geopolitical tensions may pile more pressure on the greenback, traders said. North Korea said on Wednesday it is "carefully examining" plans for a missile strike on the U.S. Pacific territory of Guam, just hours after U.S. President Donald Trump told the North that any threat to the United States would be met with "fire and fury". The market was little affected by China's inflation data for July released on Wednesday. Chinese annual producer price inflation held steady in July, with prices for key raw materials up slightly on expectations of deeper capacity cuts going into the winter months of heavy pollution, while consumer inflation slowed slightly.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.51, firmer than the previous day's 94.24. The global dollar index was effectively unchanged at 93.635 as of midday, compared with the previous close of 93.647. The offshore yuan was trading 0.15 percent weaker than the onshore spot at 6.7030 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 6.8395, 1.93 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0426 GMT:
Item Current Previous Change PBOC midpoint 6.7075 6.7184 0.16% Spot yuan 6.6929 6.708 0.23% Divergence from -0.22%
Spot change YTD 3.79% Spot change since 2005 23.66%
Item Current Previous Change Thomson 94.51 94.24 0.3
Reuters/HKEX CNH index
Dollar index 93.635 93.647 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
Offshore spot yuan 6.703 -0.15% * Offshore 6.8395 -1.93%
*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)