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China's yuan slips after Q3 GDP, corporate dollar demand

SHANGHAI, Oct 19 (Reuters) - China's yuan eased against the U.S. dollar on Thursday morning after slightly slower economic growth in the third quarter, while strong corporate demand for the greenback piled additional pressure on the Chinese currency.

China's economy grew 6.8 percent in July-September period from a year earlier, in line with market expectations and slightly slower than the second quarter. But the outcome was at odds with the central bank governor Zhou Xiaochuan's more optimistic growth outlook on Sunday, when he said gross domestic product could grow 7 percent in the second half of this year.

"With the China GDP coming in on consensus, whatever bullish sentiment the markets were positioned for...after Zhou Xiaochuan's comment earlier this week that the economy could grow 7 percent in the second half of the year, should get priced out quickly," Stephen Innes, head of Trading Asia-Pacific at OANDA said in a research note. Prior to market open, the People's Bank of China (PBOC) lowered its midpoint for the third straight day to 6.6093 per dollar, below the key psychologically important 6.6 per dollar for the first time since Oct.10. Thursday's official guidance rate was 102 pips or 0.15 percent weaker than the previous fix of 6.5991 on Wednesday. Traders said Thursday's official guidance largely matched their forecasts. In the spot market, the onshore yuan opened at 6.6290 per dollar, fell to a low of 6.6390 before changing hands at 6.6317 at midday, 46 pips weaker than the previous late session close and 0.34 percent softer than the midpoint. Its offshore counterpart also followed the trend. As of midday, the offshore yuan was trading 0.05 percent weaker than the onshore spot at 6.6353 per dollar. Traders said spot yuan fell further on rising corporate demand for the greenback as some companies usually need to purchase dollars for their financing needs in the middle of the month. Nie Wen, economist at Hwabao Trust in Shanghai, said a strengthening yuan had some negative impact on exports in the third quarter. And he expected more two-way volatility in the yuan this year, with the currency trading in a 6.5 to 6.7 per dollar range. The market has speculated about a possible widening in the yuan trading band after the 19th Party Congress. However, the PBOC's Zhou said on Thursday that it was not a key issue at the moment and the width of the current yuan exchange rate band rarely constrains supply and demand. Separately, the PBOC reported that it had purchased a net 0.9 billion yuan ($135.78 million) worth of foreign exchange in September, according to Reuters calculations based on official data released on Thursday morning, snapping 22 straight months of net sales. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.4, weaker than the previous day's 95.62. The global dollar index fell to 93.359 from the previous close of 93.363. 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 6.79, 2.66 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0408 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6093 6.5991 -0.15% Spot yuan 6.6317 6.6271 -0.07% Divergence from 0.34%

midpoint*

Spot change YTD 4.75% Spot change since 2005 24.80%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.4 95.62 -0.2

Reuters/HKEX CNH index

Dollar index 93.359 93.363 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.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.6353 -0.05% * Offshore 6.79 -2.66%

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. .

($1 = 6.6282 Chinese yuan)

(Reporting by Winni Zhou and David Stanway; Editing by Jacqueline Wong)