China's yuan eases on dollar consolidation after U.S. govt shutdown

SHANGHAI, Jan 22 (Reuters) - China's yuan eased slightly against the U.S. dollar on Monday after the greenback consolidated from losses sustained on the news of a U.S. government shutdown. The dollar regained some footing on Monday, supported by higher Treasury yields, while investors took a relatively calm view of the Washington wrangling. The stabilised U.S. unit paused the rally in the Chinese yuan, which registered six straight weeks of gains, the longest winning streak since January 2017. The People's Bank of China (PBOC) recalibrated the template for daily yuan fixings recently to nullify a discretionary counter-cyclical factor it introduced into the formula last year to contain the currency's decline. That, analysts said, meant the yuan would move in line with the currencies of its trading partners and was seen as an attempt by authorities to put a floor under the currency. China's foreign exchange trading platform, overseen by the central bank, said late on Friday that the "counter-cyclical factor" has become neutral with the midpoint fixing mechanism unchanged. "If cyclical volatility reappears in foreign exchange market sentiment in the future, or the yuan exchange rate deviates from economic fundamentals, each midpoint contributor could still adjust the counter cyclical factor based on the situation," the China Foreign Exchange Trade System (CFETS) said in the statement. Prior to market opening on Monday, the PBOC set its official yuan midpoint at 6.4112 per dollar, its highest in more than two years. Monday's official midpoint was 57 pips, or 0.09 percent, firmer than the previous fix of 6.4169 last Friday and the strongest since Dec. 8, 2015. In the spot market, the onshore yuan opened at 6.4080 per dollar and was changing hands at 6.4078 at midday, 48 pips weaker than the previous late session close. Traders said the yuan was dragged by a steadying dollar in Monday morning trade, while corporate clients' selling dollars were discouraged at around the 6.4 yuan per dollar level. The yuan strengthened around 1 percent against the dollar last week, but on a trade-weighted basis it edged up only about 0.5 percent against a basket of currencies of trading partners, according to official data from the CFETS. The index, published on a weekly basis, stood at 95.25 on Friday. Li Liuyang, senior FX analyst at China Merchants Bank in Shanghai said the authorities should be comfortable with the yuan basket index swinging in a range from 92 to 96. "All the major currencies are appreciating against the dollar so far this year ... There is no need to worry about appreciation expectations in the yuan at the moment, while there seems to be no one-way bet in the market," Li said, expecting that Beijing would likely start considering taking measures to curb the yuan rally once the basket index rose above 95.5. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.4, firmer than the previous day's 96.28. The global dollar index rose to 90.655 from the previous close of 90.572. The offshore yuan was trading 0.02 percent firmer than the onshore spot at 6.4067 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 6.5315, 1.84 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0411 GMT:


Item Current Previous Change PBOC midpoint 6.4112 6.4169 0.09% Spot yuan 6.4078 6.403 -0.07% Divergence from -0.05%


Spot change YTD 1.55% Spot change since 2005 29.16%


Key indexes:

Item Current Previous Change Thomson 96.4 96.28 0.1

Reuters/HKEX CNH index

Dollar index 90.655 90.572 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 6.4067 0.02% * Offshore 6.5315 -1.84%

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 Eric Meijer)