Yuan eases on dollar rebound, shrugs off highest consumer inflation in years

SHANGHAI, March 9 (Reuters) - China's yuan eased against the U.S. dollar on Friday, pressured by a rise in the greenback in global markets on the news that the leaders of North Korea and the United States could meet by May. The dollar was also supported by some reduction in fears of a global trade war after President Donald Trump made two exemptions for U.S. tariffs on imported steel and aluminum, and left the door open to others. The global dollar index, which measures the unit's strength against six other major currencies, rose to 90.203 as of midday from the previous close of 90.179. Prior to market opening, the People's Bank of China (PBOC) set the yuan's midpoint rate at 6.3451 per dollar, 212 pips or 0.33 percent weaker than Thursday's fix of 6.3239. In the spot market, the onshore yuan opened at 6.3474 per dollar and eased to a low of 6.3594 before changing hands at 6.3436 at midday, 58 pips weaker than the previous late session close but 0.02 percent firmer than the midpoint. If the yuan finishes the late night session at the midday level, it would have weakened 0.1 percent against the dollar for the week. The Chinese currency was unchanged versus the greenback last week. Domestic market participants said the yuan trade had little reaction to February consumer inflation data, reported on Friday, which showed a pick-up to the highest in more than four years. While the surprisingly strong reading hit the official full-year goal of around 3 percent, some analysts attributed the price rises to temporary factors like higher food prices over the long Lunar New Year holiday. As such, they do not expect the central bank to alter its policy stance. But markets are still penciling in some gradual tightening this year, with another hike in short-term rates possible as early as this month. Losses for the yuan on Friday were capped as corporate dollar selling interest emerged. Traders will be paying attention to U.S. February jobs data due later on Friday. Trade issues between China and the United States will remain a market focus. Zhao Yang, chief China economist at Nomura International, said in a note on Friday, said he preferred to "remain tactically long USD/CNY," given near-term external risks from global monetary policy normalization, and the prospect of rising U.S. inflation and trade protectionism. On the sidelines of the annual parliament session, PBOC Vice Governor Pan Gongsheng said yuan exchange rate expectations have been stable since 2017 and China has basically exited countercyclical adjustments on capital outflows. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.87, firmer than the previous day's 96.79. The offshore yuan was trading 0.01 percent firmer than the onshore spot at 6.3429 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 6.4725, 1.97 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0408 GMT:


Item Current Previous Change PBOC midpoint 6.3451 6.3239 -0.33% Spot yuan 6.3436 6.3378 -0.09% Divergence from -0.02%


Spot change YTD 2.57% Spot change since 2005 30.47%


Key indexes:

Item Current Previous Change Thomson 96.87 96.79 0.1

Reuters/HKEX CNH index

Dollar index 90.203 90.179 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 6.3429 0.01% * Offshore 6.4725 -1.97%

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)