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China's yuan rebounds, set to snap 4-day losing streak

SHANGHAI, Aug 17 (Reuters) - China's yuan rebounded against the U.S. dollar by midday on Thursday, poised to break a four-day losing streak, as the greenback weakened on growing uncertainty over the pace of U.S. interest rate rises. The dollar fell overnight after the release of minutes from the Federal Reserve's July meeting that showed policymakers appeared increasingly wary about recent weak inflation and some called for halting interest rate increases until it was clear the trend was transitory. Prior to market opening on Thursday, the People's Bank of China (PBOC) set the midpoint rate at 6.6709 per dollar, 70 pips or 0.1 percent, firmer than the previous fix of 6.6779. In the spot market, the yuan opened at 6.6780 per dollar and was changing hands at 6.6708 at midday, 202 pips firmer than the previous late session close and only 1 pip higher than the midpoint. "The market was mainly driven by the weak dollar in morning trade," said a Shanghai-based trader at a Chinese bank. "If the dollar index remains hovering below the 94 level, it is likely that more companies who hold dollars will come out to liquidate their positions." The dollar index, a gauge that measures the dollar's strength against six other currencies, fell to 93.384 from the previous close of 93.541. Onshore spot yuan has so far gained nearly 0.9 percent against the dollar this month, after strengthening for three months in a row from May till July, an unusual run for the Chinese currency. The yuan fell around 6.5 percent against the surging dollar last year. Iris Pang, economist at ING, said in a note on Thursday that the recent yuan rally suggested that net fund inflows would "become increasingly likely in August". "If so, the PBOC need not accelerate yuan appreciation as fast as in early August. That said, a depreciation back towards 6.77, the level of USD/CNY a month ago, would trigger fresh capital outflows, so is unlikely," Pang wrote, adding she did not expect a relaxation in the capital outflow guidance. State Administration of Foreign Exchange (SAFE) data on Wednesday showed that commercial banks' net sales fell to $15.5 billion in July, the lowest in three months and down from $20.9 billion in June. For the January to July period, commercial banks sold a net $109.3 billion of foreign exchange. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.69, weaker than the previous day's 94.76. The offshore yuan was trading 0.12 percent weaker than the onshore spot at 6.6788 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 6.832, 2.36 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0401 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6709 6.6779 0.10% Spot yuan 6.6708 6.691 0.30% Divergence from 0.00%

midpoint*

Spot change YTD 4.14% Spot change since 2005 24.07%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.69 94.76 -0.1

Reuters/HKEX CNH index

Dollar index 93.384 93.541 -0.2

*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 6.6788 -0.12% * Offshore 6.832 -2.36%

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)