China's yuan weakens as corporate demand for dollars edges up

SHANGHAI, Aug 25 (Reuters) - China's yuan eased against the U.S. dollar on Friday on slightly heavier corporate demand for the greenback, but losses were capped as market participants awaited a central bankers' conference for clues on further U.S. monetary tightening. The Chinese currency is set to finish flat against the dollar for the week and has gained 4.2 percent so far this year, supported by the U.S. currency's broad weakness as well as Beijing's tighter controls on capital outflows. Prior to Friday's market opening, the People's Bank of China set the yuan's midpoint rate at 6.6579 per dollar, 54 pips or 0.08 percent weaker than the previous fix 6.6525. In the spot market, the yuan opened at 6.6605 per dollar and was changing hands at 6.6660 at midday, 20 pips weaker than the previous late session close and 0.12 percent softer than the midpoint. If the spot yuan finishes the late night session at the current level, the Chinese yuan will have traded largely flat against the dollar for the week. Traders said corporate dollar purchases were heavier on Friday morning, dragging the spot yuan rate lower. A trader at a Chinese bank noted that the stronger corporate demand this week suggested some investors might have thought the yuan was unlikely to strengthen further, and therefore took advantage of a cheaper dollar to build up their positions. Another trader at a Chinese bank said some market participants had squared their books and were on the sidelines on Friday as central bankers gathered for the U.S. Federal Reserve's annual conference in Jackson Hole, Wyoming.

A Reuters poll published on Thursday showed that bullish bets on the Chinese yuan stood at three-year highs. The dollar index, which tracks the U.S. unit against a basket of six major rivals, rose to 93.297 from the previous close of 93.277. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.87, weaker than the previous day's 94.89. The offshore yuan was trading 0.06 percent firmer than the onshore spot at 6.6617 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 6.8105, 2.24 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0342 GMT:


Item Current Previous Change PBOC midpoint 6.6579 6.6525 -0.08% Spot yuan 6.666 6.664 -0.03% Divergence from 0.12%


Spot change YTD 4.21% Spot change since 2005 24.16%


Key indexes:

Item Current Previous Change Thomson 94.87 94.89 0.0

Reuters/HKEX CNH index

Dollar index 93.297 93.277 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 6.6617 0.06% * Offshore 6.8105 -2.24%

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 Lisa Twaronite and Richard Borsuk)