SHANGHAI, Sept 14 (Reuters) - China's yuan extended its losses against the dollar on Thursday, and is set for the fifth straight day in the red, after the central bank lowered its official guidance to its weakest level in nearly two weeks. The direction of the Chinese currency, down about 0.9 percent this week, has become hard to predict recently, traders said. At one point last week, the yuan was up more than 7.5 percent against the dollar this year and more than made up the losses notched in 2016. Prior to market opening on Thursday, the People's Bank of China (PBOC) lowered its official yuan midpoint for the third session in a row to 6.5465 per dollar, the weakest level since Sept.4. The midpoint was 83 pips or 0.13 percent weaker than Wednesday's fix of 6.5382, reflecting a softer spot yuan a day earlier and broad dollar moves overnight, traders said.
In the domestic spot market, the yuan opened at 6.5472 per dollar and was changing hands at 6.5450 at midday, only 3 pips weaker than the previous late session close and 0.02 percent softer than the midpoint. Some companies liquidated their dollar positions, dragging the spot price slightly lower after the yuan booked four straight days of losses from Friday through Wednesday. A trader at a foreign bank in Shanghai expects companies holding large amounts of dollar positions would continue to sell if the yuan fell further. Market estimated that onshore companies were sitting on around $500 billion as a result of hoarding foreign exchange in the past two years amid strong depreciation expectations for the Chinese currency, Chi Lo, Greater China senior economist at BNP Paribas Asset Management said in a note on Thursday. "Now that the fears have gone, they are starting to unwind their FX positions. This force will sustain the renminbi's strength for a good while longer, especially if renminbi sentiment continues to improve," Chi said. Analysts said the yuan seemed to be "more vulnerable" to the rebound in the dollar in the wake of a relaxation of controls on capital outflows. "The PBoC's policy change to relax restrictions in short selling RMB had cooled down bullish RMB sentiment successfully," said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, expecting the offshore yuan to test a low of 6.6 per dollar. Traders said the market took weaker-than-expected August activity indicators in stride. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.01, weaker than the previous day's 96.03. The global dollar index fell to 92.473 from the previous close of 92.52. The offshore yuan was trading 0.11 percent weaker than the onshore spot at 6.5525 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 6.681, 2.01 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0400 GMT:
Item Current Previous Change PBOC midpoint 6.5465 6.5382 -0.13% Spot yuan 6.545 6.5447 0.00% Divergence from -0.02%
Spot change YTD 6.14% Spot change since 2005 26.46%
Item Current Previous Change Thomson 96.01 96.03 0.0
Reuters/HKEX CNH index
Dollar index 92.473 92.52 -0.1
*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 6.5525 -0.11% * Offshore 6.681 -2.01%
*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 David Stanway; Editing by Shri Navaratnam)