Yuan weakens on rising corporate dollar demand before Fed decision

SHANGHAI, Dec 12 (Reuters) - China's yuan eased slightly against the U.S. dollar on Tuesday on rising seasonal corporate demand for the greenback ahead of a U.S. Federal Reserve policy meeting. In the global market, the dollar held steady near a recent two-week high against a basket of major currencies. The market has already priced in a interest rate hike by the Fed at its meeting that ends on Wednesday. Domestic traders said they will focus on Fed comments on the pace of further U.S. monetary tightening, as that would affect the yuan's movements. There's speculation that China's central bank will wield a liquidity management tool twice this month for the first time since March, and that has some traders feeling Beijing might tighten policy soon after the Fed meeting. Prior to market opening on Tuesday, the People's Bank of China set the yuan midpoint rate at 6.6162 per dollar, 10 pips weaker than the previous fix of 6.6152. In the spot market, the onshore yuan opened at 6.6171 per dollar and was changing hands at 6.6228 at midday, 43 pips weaker than the previous late session close and 0.10 percent softer than the midpoint. Traders said the spot rate was pulled lower by some seasonal corporate dollar demand, while the greenback's strength also weighed on the Chinese currency. Some oil firms and other companies usually shore up their dollar holdings in the middle of a month to meet financing needs. In coming weeks, the yuan is unlikely to move much, some analysts say. "With China continuing to work on financial de-leverage, it seems that RMB is unlikely to be back to the spotlight by end of the year," Tommy Xie, economist at OCBC Bank in Singapore said in a note. He predicted the yuan stay between 6.5 to 6.7 per dollar the rest of December. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.37, weaker than the previous day's 95.43. The global dollar index rose to 93.931 from the previous close of 93.866. The offshore yuan was trading 0.02 percent weaker than the onshore spot at 6.6244 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 6.769, 2.26 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0422 GMT:


Item Current Previous Change PBOC midpoint 6.6162 6.6152 -0.02% Spot yuan 6.6228 6.6185 -0.06% Divergence from 0.10%


Spot change YTD 4.89% Spot change since 2005 24.97%


Key indexes:

Item Current Previous Change Thomson 95.37 95.43 -0.1

Reuters/HKEX CNH index

Dollar index 93.931 93.866 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 6.6244 -0.02% * Offshore 6.769 -2.26%

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)