China's yuan inches up, gains capped by dollar demand

SHANGHAI, March 6 (Reuters) - China's yuan edged up against the U.S. dollar on Tuesday, supported by a slightly firmer official midpoint, but gains were capped on rising corporate demand for the greenback. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3386 per dollar, 45 pips or 0.07 percent firmer than Monday's previous fix of 6.3431. In the spot market, the onshore yuan opened at 6.3352 per dollar and was changing hands at 6.3404 at midday, 15 pips firmer than the previous late session close but 0.03 percent weaker than the midpoint. One trader said that while the global dollar index slipped overnight, reduced fears about a possible trade war stemming from President Donald Trump's proposed tariff moves lifted corporate demand for the greenback in Shanghai. The global dollar index inched down to 89.962 from the previous close of 90.08. Some traders said that the midpoint fixing recently has become more predictable as authorities have been absent from the market, leaving intraday movement largely dependent on demand. Trade issues between China and the United States remained a market focus, as did the annual meeting of the Chinese parliament, which opened in Beijing on Monday and will end on March 20. Gao Qi, FX strategist at Scotiabank in Singapore said he expected the yuan to have a "strengthening bias" during the annual session. "We maintain our short USD/CNY position with a target of 6.20, while expecting the pair to trade in a range of 6.20-6.40 at the moment," Gao wrote in a note to clients on Tuesday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.85, weaker than the previous day's 96.97. The offshore yuan was trading 0.01 percent firmer than the onshore spot at 6.3395 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 6.467, 1.99 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0414 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.3386 6.3431 0.07% Spot yuan 6.3404 6.3419 0.02% Divergence from 0.03%

midpoint*

Spot change YTD 2.63% Spot change since 2005 30.54%

revaluation

Key indexes:

Item Current Previous Change Thomson 96.85 96.97 -0.1

Reuters/HKEX CNH index

Dollar index 89.962 90.08 -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.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.3395 0.01% * Offshore 6.467 -1.99%

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)