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China's yuan eases on lower fixing, set for the 4th day of losses

SHANGHAI, Aug 16 (Reuters) - China's yuan weakened slightly against the U.S. dollar on Wednesday and looked set for its fourth straight day of losses, after the central bank guided its official yuan fixing to the lowest level in a week. Prior to the market open, the People's Bank of China (PBOC) set the midpoint rate at 6.6779 per dollar, 90 pips or 0.13 percent softer than the previous fix of 6.6689. Wednesday's guidance was the weakest since Aug.9. Traders said the fixing largely matched their expectations and reflected gains in the dollar overnight as upbeat U.S. retail sales data kept the chance of another interest rate hike this year alive. In the spot market, the onshore yuan opened at 6.6870 per dollar and was changing hands at 6.6876 at midday, 16 pips weaker than the previous late session close and 0.15 percent softer than the midpoint. Its offshore counterpart weakened early and briefly breached the psychologically important 6.7 per dollar level. It was trading at 0.17 percent lower than the onshore spot at 6.6988 of midday. One trader at a Chinese bank said market participants in the onshore market were not so eager to test the 6.7 level. Some pointed out that dollar demand by oil firms may rise soon to pile pressure as these firms usually build up their dollar reserves mid-month for their business needs. And some other companies' dollar purchases for trade and financing demands may show up later in the month. Official data showed on Wednesday that net foreign exchange sales by China's central bank fell to the lowest level last month since October 2015, confirming market views that pressure from capital outflows has eased due to tighter government curbs and a rebound in the yuan in recent months. The PBOC sold a net 4.6 billion yuan ($687.90 million) worth of foreign exchange in July, down from 34.3 billion yuan in June, according to Reuters calculations based on central bank data. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.8, weaker than the previous day's 94.82. The global dollar index fell to 93.825 from the previous close of 93.853. 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 6.836, 2.31 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0348 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6779 6.6689 -0.13% Spot yuan 6.6876 6.686 -0.02% Divergence from 0.15%

midpoint*

Spot change YTD 3.87% Spot change since 2005 23.76%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.8 94.82 0.0

Reuters/HKEX CNH index

Dollar index 93.825 93.853 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 6.6988 -0.17% * Offshore 6.836 -2.31%

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. .

($1 = 6.6870 Chinese yuan)

(Reporting by Winni Zhou and John Ruwitch; Editing by Kim Coghill)