×

China's yuan eases on weak fixing, dollar momentum

SHANGHAI, Oct 23 (Reuters) - China's yuan fell against the U.S. dollar on Monday after a weaker midpoint fixing and as the dollar gained traction on growing prospects over U.S. tax reforms. Prior to market opening on Monday, the People's Bank of China lowered its official yuan midpoint to 6.6205 per dollar, the weakest since Oct. 10. Monday's official fixing, 113 pips or 0.17 percent softer than the previous fix of 6.6092 per dollar on Friday, largely matched market forecasts, traders said. The weaker midpoint guided the yuan lower, with spot yuan opening at 6.6311 per dollar and falling to a low of 6.6395 at one point on Monday morning, the softest level in two weeks. As of midday, onshore spot yuan was changing hands at 6.6322, 127 pips weaker than the previous late session close on Friday. Its offshore counterpart also weakened. The offshore yuan fell below 6.64 per dollar at one point before paring losses to trade 0.02 percent weaker than the onshore spot at 6.6337 per dollar as of midday. Traders attributed the losses in the Chinese currency to the central bank's weaker daily guidance and the bullish dollar. President Donald Trump's drive to overhaul the U.S. tax code cleared a critical hurdle last week when the Senate approved a budget blueprint for the 2018 fiscal year, paving the way for Republicans to pursue a tax-cut package without Democratic support. Progress in the tax reforms boosted expectations of increased U.S. government borrowing and a possible pick-up in inflation. A trader at a foreign bank said the yuan was likely to track the dollar movement in the near term. Some market watchers said there remained uncertainty in the dollar's movement, which was likely to be affected by who Trump would appoint as the next Federal Reserve chief. Wang Tao, economist at UBS in Hong Kong said in a note late last week she expected the yuan would be rangebound against the dollar for the remainder of the year, ending 2017 at 6.6 per dollar. "We expect the PBOC to keep CNY mostly stable against the basket, so CNY movements will pivot more on USD for the rest of this year though USDCNY will likely hold steady/firmer ahead of U.S. President Trump's November visit," Wang said. The yuan weakened around 0.6 percent against the greenback last week, but on a trade-weighted basis, it fell only 0.4 percent against a basket of currencies of trading partners in the same period, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 94.64 on Friday. Separately, liquidity in China's money market remained ample on Monday, traders said, as the PBOC injected a net 140 billion yuan on the first trading day this week following a generous 560 billion yuan net injection last week. The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.7606 percent at midday, nearly 7 basis points lower than the previous week's closing average rate. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.61, weaker than the previous day's 95.72. The global dollar index rose to 93.768 from the previous close of 93.701. 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 6.7875, 2.46 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0405 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6205 6.6092 -0.17% Spot yuan 6.6322 6.6195 -0.19% Divergence from 0.18%

midpoint*

Spot change YTD 4.74% Spot change since 2005 24.79%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.61 95.72 -0.1

Reuters/HKEX CNH index

Dollar index 93.768 93.701 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

from onshore

Offshore spot yuan 6.6337 -0.02% * Offshore 6.7875 -2.46%

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 Jacqueline Wong)