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Yuan dips as companies step up dollar buying

SHANGHAI, Oct 12 (Reuters) - China's yuan eased against the U.S. dollar on Thursday amid by heavier corporate demand for the greenback, traders said. Prior to the market opening on Thursday, the People's Bank of China (PBOC) lifted its official yuan midpoint for a third straight day to 6.5808 per dollar, the strongest level since Sept. 20. The official guidance rate was 33 pips or 0.05 percent firmer than the previous fix of 6.5841 on Wednesday, and was largely in-line with market expectations, traders said. Official fixings have been set at firmer-than-expected levels in the previous few sessions, a trend which traders believe is intended to reduce volatility in the Chinese currency after big swings last month. The central bank added an unspecified "counter-cyclical" factor to its yuan guidance calculations in late May in a bid to tamp down volatility and discourage speculators. "Since its inclusion in the fixing mechanism in late May, the counter-cyclical factor has been providing an important signaling effect on the direction of USD/CNY," Irene Cheung, senior strategist at ANZ wrote in a note this week. In the spot market, the yuan opened at 6.5860 per dollar and was changing hands at 6.5911 at midday, 29 pips weaker than the previous late session close and 0.16 percent softer than the midpoint. Traders said the market shrugged off the stronger fix and focused instead on corporate flows in morning trade. "The spot yuan didn't follow global dollar movement, and it was mainly due to corporate dollar buying, including both seasonal demand and bargain hunting," said a trader at a Chinese bank in Shanghai. The trader expected the yuan to remain confined to a narrow range between 6.55 and 6.6 per dollar in the run up to the National Congress of the Communist Party, starting on Oct. 18. The congress is held only twice a decade, and will see both a leadership reshuffle and the setting of political and economic priorities for the next five years. Chinese authorities typically try to keep financial markets stable during such politically sensitive events. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96, weaker than the previous day's 96.23. The global dollar index fell to 92.83 from the previous close of 93.015. The offshore yuan was trading 0.14 percent stronger than the onshore spot at 6.5822 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 6.7335, 2.27 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0413 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.5808 6.5841 0.05% Spot yuan 6.5911 6.5882 -0.04% Divergence from 0.16%

midpoint*

Spot change YTD 5.40% Spot change since 2005 25.57%

revaluation

Key indexes:

Item Current Previous Change Thomson 96 96.23 -0.2

Reuters/HKEX CNH index

Dollar index 92.83 93.015 -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 6.5822 0.14% * Offshore 6.7335 -2.27%

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 Kim Coghill)