China's yuan firms, seen keeping stable during annual congress

SHANGHAI, March 5 (Reuters) - China's yuan edged up on Monday, as concerns over a trade war hit the dollar, while traders expect the Chinese currency to remain stable during the country's key parliamentary sessions. U.S. President Donald Trump's proposal to impose hefty tariffs on steel and aluminum imports raised the prospect of retaliation by China and other countries that could damage the U.S. economy. China's annual meeting of parliament, also known as National People's Congress, started on Monday and will wrap up on March 20 in which the leadership will outline key economic targets and policy priorities over the coming year. The government said in a work report on Monday it aims to expand the economy by around 6.5 percent this year, the same as in 2017, while pressing ahead with its campaign to reduce risks in the financial system. It also reiterated that Beijing would keep the yuan basically stable, the government's usual wording for the currency that has been repeated at different occasion in the past few years. Traders and market watchers said that meant the exchange rate regime would not be a policy priority for 2018. "It appears to me that the FX regime will remain largely unchanged at this conjunction, and the focus is on the deleveraging in the domestic financial market," said Zhou Hao, analyst at Commerzbank in Singapore. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3431 per dollar, 97 pips or 0.15 percent weaker than the previous fix of 6.3334 on Friday. In the spot market, the onshore yuan opened at 6.3284 per dollar and was changing hands at 6.3327 at midday, 52 pips firmer than the previous late session close and 0.16 percent stronger than the midpoint. Traders said the government report did not offer fresh insight on foreign exchange reform, but the Chinese currency was likely to maintain stability during the annual "two sessions" of parliament. Traditionally, Chinese authorities have sought to push for stability as any major volatility in the economy would be unwelcome during major political events. Some market participants said trade issues between China and the United States would be a focus, as Premier Li Keqiang said in the work report that China opposes protectionism and supports the settlement of trade disputes through negotiation, but will "resolutely safeguard" its legitimate rights and interest.

Separately, the Chinese currency was unchanged versus the greenback last week, but on a trade-weighted basis rose 0.49 percent against the basket of currencies of its trading partners, according to official data from the CFETS. The index, published on a weekly basis, stood at 96.27 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 96.99, firmer than the previous day's 96.85. The global dollar index rose to 89.955 from the previous close of 89.935. The offshore yuan was trading 0.01 percent firmer than the onshore spot at 6.3322 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 6.462, 1.84 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0417 GMT:


Item Current Previous Change PBOC midpoint 6.3431 6.3334 -0.15% Spot yuan 6.3327 6.3379 0.08% Divergence from -0.16%


Spot change YTD 2.75% Spot change since 2005 30.69%


Key indexes:

Item Current Previous Change Thomson 96.99 96.85 0.1

Reuters/HKEX CNH index

Dollar index 89.955 89.935 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 6.3322 0.01% * Offshore 6.462 -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 Jacqueline Wong)