SHANGHAI, Sept 19 (Reuters) - China's yuan weakened against the U.S. dollar on Tuesday, giving back all the gains it booked in early September, pressured by a softer fixing and heavy corporate demand for the greenback. The Chinese currency has lost more than 1,500 pips from a 21-month peak it reached on Sept.8, as a rallying yuan has forced the authorities to put a brake on its rise and relax some restrictions on capital outflows. "Intraday volatility in the spot yuan has become higher recently," said a trader at a regional bank in Shanghai, adding he expected the volatility to persist for the rest of the year. Before it slid last week, the onshore yuan strengthened to show a year-to-date gain of more than 7.5 percent against the dollar, erasing its 2016 losses. Traders said corporate dollar buying started rising on Monday afternoon and remained strong on Tuesday morning, pulling the spot yuan rate to just marginally above than the psychologically important 6.6 per dollar level. Prior to market opening on Tuesday, the People's Bank of China lowered its official yuan midpoint to 6.5530 per dollar, the weakest level since Sept.4, 111 pips or 0.17 percent weaker than Monday's fix of 6.5419. Tuesday's softer guidance rate reflected strength in the dollar overnight and weakness in spot yuan a day earlier, traders said. The dollar rose overnight in the overseas markets, supported by a rise in U.S. Treasury yields, as traders waited on an impending Federal Reserve meeting for clues on whether U.S. interest rates could rise again by year-end. In the spot market, the yuan opened at 6.5760 per dollar, fell to a low of 6.5987 before changing hands at 6.5900 at midday, 139 pips weaker than the previous late session close and 0.56 percent softer than the midpoint. Market participants said they were sidelined, adding they did not pick either side of the yuan for proprietary trade in recent sessions. China's commercial banks sold a net $3.8 billion of foreign exchange in August, the lowest since June 2015, compared with a net sale of $15.5 billion in July, the State Administration of Foreign Exchange (SAFE) said on its website on Monday.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.39, weaker than the previous day's 95.76. The global dollar index fell to 91.899 from the previous close of 92.047. The offshore yuan was trading 2 pips firmer than the onshore spot at 6.5898 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 6.715, 2.41 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0501 GMT:
Item Current Previous Change PBOC midpoint 6.553 6.5419 -0.17% Spot yuan 6.59 6.5761 -0.21% Divergence from 0.56%
Spot change YTD 5.41% Spot change since 2005 25.59%
Item Current Previous Change Thomson 95.39 95.76 -0.4
Reuters/HKEX CNH index
Dollar index 91.899 92.047 -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
Offshore spot yuan 6.5898 0.00% * Offshore 6.715 -2.41%
*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)