Yuan eases on bargain hunting for dollar, set for losing week

SHANGHAI, Nov 3 (Reuters) - China's yuan eased against the U.S. dollar on Friday as a stronger official midpoint prompted bargain hunting for the greenback. The dollar dipped to a one-week low against other major currencies on Thursday as markets worried that passage of U.S. tax reforms was far from certain, and as President Donald Trump's nomination of Federal Reserve Governor Jerome Powell to be the next Fed chair come as no surprise. Prior to the market opening on Friday, the People's Bank of China lifted the midpoint rate for a fourth straight day to 6.6072 per dollar, 124 pips or 0.19 firmer than the previous fix of 6.6196 on Thursday. The move in the official fixing was the fresh biggest one-day strengthening in percentage terms since Oct. 11. But it failed to lift spot market levels. Spot yuan opened at 6.6090 per dollar and was changing hands at 6.6181 at midday, 91 pips weaker than the previous late session close and 0.16 percent softer than the midpoint. If the yuan ends the late night session at those levels, it would have lost 0.5 percent against the greenback this week, roughly offsetting its gain last week. Traders said Friday's stronger fixing prompted bargain hunting for dollars in the domestic market. A Shanghai-based trader at a foreign bank said heavy corporate dollar selling over the past three sessions had pushed the spot yuan level higher, so some companies started purchasing dollars in morning trade on Friday. Some traders said they would pay close attention to the U.S. job data due later on Friday in an attempt to figure out dollar's movement in the near term. Gao Qi, a currency strategist at Scotiabank in Singapore said a note on Friday morning that he expected the yuan to trade between 6.50 and 6.70 with a strengthening bias in the run-up to Trump's visit to China next week. "We believe the CFETS RMB Index will likely remain elevated for now as the yuan will outperform other regional currencies prior to Trump's Asia travel," he said. Currency strategists and traders said that in the days around Trump's Nov. 8-10 Beijing visit they expect the PBOC, which controls the exchange rate, to prop up the yuan.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.11, weaker than the previous day's 96.26. The offshore yuan was trading 0.01 percent weaker than the onshore spot at 6.6190 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 6.776, 2.49 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0406 GMT:


Item Current Previous Change PBOC midpoint 6.6072 6.6196 0.19% Spot yuan 6.6181 6.609 -0.14% Divergence from 0.16%


Spot change YTD 4.97% Spot change since 2005 25.06%


Key indexes:

Item Current Previous Change Thomson 96.11 96.26 -0.2

Reuters/HKEX CNH index

Dollar index 94.699 94.685 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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.619 -0.01% * Offshore 6.776 -2.49%

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)