China's yuan slightly firmer on tight liquidity

SHANGHAI, Aug 23 (Reuters) - China's yuan edged up slightly against the U.S. dollar early on Wednesday on tight liquidity, with traders looking to a meeting of global central bankers in the United States for further cues. Prior to market opening, the People's Bank of China set the midpoint rate at 6.6633 per dollar, 36 pips or 0.05 percent weaker than the previous fix 6.6597. In the spot market, the yuan opened at 6.6620 per dollar and was changing hands at 6.6613 at midday, 7 pips firmer than the previous late session close and 0.03 percent stronger than the midpoint. Traders said the market was balanced in morning trade with prices traversing Tuesday's late night close though there were signs that liquidity was tightening again. Some traders said cash conditions have been tight for a week. Seasonal factors including corporate tax payments weighed on liquidity last week, and month-end cash demand started to emerge, adding to the pressure, they said. In contrast, offshore yuan was trading weaker than its onshore counterpart due to ample liquidity in Hong Kong. China's short-term money rates jumped to their highest level in nearly five months on Wednesday. As of midday, offshore spot was trading 0.04 percent weaker than the onshore spot at 6.6637 per dollar. A trader at a foreign bank in Shanghai said the market would focus on the annual central banking conference in Jackson Hole, Wyoming later this week where central bankers may signal their next policy actions. But he added that trading positions ahead of the conference would not change much. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.88, firmer than the previous day's 94.86. The global dollar index fell to 93.528 from the previous close of 93.545. 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 6.798, 1.98 percent weaker than then midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0412 GMT:


Item Current Previous Change PBOC midpoint 6.6633 6.6597 -0.05% Spot yuan 6.6613 6.662 0.01% Divergence from -0.03%


Spot change YTD 4.28% Spot change since 2005 24.25%


Key indexes:

Item Current Previous Change Thomson 94.88 94.86 0.0

Reuters/HKEX CNH index

Dollar index 93.528 93.545 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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.6637 -0.04% * Offshore 6.798 -1.98%

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)