China's yuan eases on weaker fixing, stable dollar

SHANGHAI, Dec 18 (Reuters) - China's yuan eased slightly against the U.S. dollar on Monday, dragged lower by a weaker official midpoint and stability in the greenback on optimism over the progress of U.S. tax reform. The dollar held modest gains against its major peers on Monday morning, as Republicans on the House-Senate negotiating committee on Friday put the finishing touches on a sweeping tax overhaul that involves large corporate tax cuts.

Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.6162 per dollar, 49 pips or 0.07 percent weaker than the previous fix of 6.6113 on Friday. In the spot market, the onshore yuan opened at 6.6126 per dollar and was changing hands at 6.6115 at midday, 35 pips weaker than the previous late session close but 0.07 percent stronger than midpoint. Traders said the spot yuan trade on Monday morning was very stable. "There was some corporate dollar selling in morning trade, but their dollar demand should emerge very soon," said a trader at a Chinese bank in Shanghai. Households and companies usually shore up their dollar positions at the end of the year, but some market participants argued that dollar buying was not as strong as in previous years. A potentially stronger yuan was discouraging investors from stockpiling dollars. Several traders said the yuan was likely to finish the year around the current level, with some expecting it to strengthen slightly in 2018. Domestic foreign exchange traders said they would pay attention to the outcome of the Central Economic Work Conference, which opened on Monday, state-owned Xinhua news agency said. A proposed gross domestic product growth target would be endorsed by top leaders at the closed-door meeting, and then announced at China's annual congress in early 2018. The yuan strengthened around 0.24 percent against the dollar last week, but on a trade-weighted basis it edged down about 0.15 percent against a basket of currencies of trading partners, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 94.45 on Friday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.51, firmer than the previous day's 95.26. The global dollar index fell to 93.877 from the previous close of 93.932. The offshore yuan was trading only 1 pip weaker than the onshore spot at 6.6116 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 6.765, 2.20 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 6.6162 6.6113 -0.07% Spot yuan 6.6115 6.608 -0.05% Divergence from -0.07%


Spot change YTD 5.07% Spot change since 2005 25.18%


Key indexes:

Item Current Previous Change Thomson 95.51 95.26 0.3

Reuters/HKEX CNH index

Dollar index 93.877 93.932 -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 6.6116 0.00% * Offshore 6.765 -2.20%

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 Andrew Galbraith; Editing by Jacqueline Wong)