China's yuan slips below 6.6/dlr on weaker midpoint, more dollar buying

SHANGHAI, Oct 17 (Reuters) - China's yuan slipped below a key threshold against the U.S. dollar on Tuesday morning, in the wake of a weaker official midpoint and higher corporate demand for the greenback. Prior to Tuesday's market opening, the People's Bank of China set its midpoint for trading at 6.5883 per dollar, 44 pips or 0.07 percent weaker than the previous fix of 6.5839. The weakness in the official fixing reflected the dollar's gains overnight in global markets. The spot yuan breached the 6.6 per dollar for the first time in a week. The spot market opened at 6.5970 per dollar and was changing hands at 6.6020 at midday, 130 pips weaker than the previous late session close and 0.21 percent softer than the midpoint. Traders said bank clients' dollar buying picked up, dragging the spot yuan lower on Tuesday morning. But they expect it to stabilise around the current level in the near term. Market participants' trading in their own accounts was marginal ahead of the Communist Party Congress, which kicks off on Wednesday. During the congress, authorities are likely to push for stability in the exchange rate. "Unquestionably, the market is sitting tight while keeping eyes peeled and ears to the ground for any groundbreaking policy shift" to come from the congress, said Stephen Innes, head of Asia-Pacific trading at OANDA, in a note. Investors were also awaiting China's third quarter GDP growth data, due on Thursday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.85, weaker than the previous day's 95.96. The global dollar index rose to 93.368 from the previous close of 93.312. The offshore yuan was trading 0.05 percent stronger than the onshore spot at 6.599 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 6.7525, 2.43 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0408 GMT:


Item Current Previous Change PBOC midpoint 6.5883 6.5839 -0.07% Spot yuan 6.602 6.589 -0.20% Divergence from 0.21%


Spot change YTD 5.22% Spot change since 2005 25.36%


Key indexes:

Item Current Previous Change Thomson 95.85 95.96 -0.1

Reuters/HKEX CNH index

Dollar index 93.368 93.312 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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.599 0.05% * Offshore 6.7525 -2.43%

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 Richard Borsuk)