Yuan eases after dollarGÇÖs gain prompts weaker midpoint fixing

SHANGHAI, March 16 (Reuters) - China's yuan eased against the U.S. dollar on Friday, after a weaker official midpoint fixing that reflected gains by the greenback, but the Chinese currency remained on course for a winning week. Overnight, the dollar climbed 0.5 percent against a basket of peers, and then held most of its advance, as recent concerns about trade tensions eased slightly and next week's Federal Reserve policy meeting came into focus. Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3340 per dollar, 199 pips or 0.3 percent weaker than the previous fix of 6.3141. The midpoint's move was its biggest one-day weakening, in percentage terms, in a week. Traders said the fixing largely matched market expectations. The spot market opened at 6.3298 per dollar and fell to a low of 6.3345 at one point, the yuan's softest level in nearly a week. As of midday, the onshore spot yuan rate was changing hands at 6.3292, or 97 pips weaker than the previous late session close. If the onshore yuan finishes the late night session at the midday level, it would have gained 0.1 percent against the dollar for the week. Last week, the Chinese currency was largely flat versus the greenback. Some market participants believe the yuan will remain between 6.30 and 6.36 per dollar before the Fed policy decision due on March 21. This is prompting dollar buying when the spot yuan rate approaches the stronger end, and selling when near the other end. A trader at a foreign bank said there's uncertainty about the dollar's path as a U.S. rate hike by the Fed next week was baked in, but beyond that there is not a clear direction. Some traders suspect the PBOC, after the Fed meeting, may once again follow suit with a modest but symbolic increase in money market rates. On Friday, China's central bank lent 327 billion yuan ($51.69 billion) to financial institutions via its 1-year medium-term lending facility (MLF) with rates unchanged, exceeding the value of such loans maturing on the same day.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.05, firmer than the previous day's 96.96. The global dollar index slipped to 90.069 from the previous close of 90.139. The offshore yuan was trading 0.07 percent firmer than the onshore spot at 6.3250 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 6.453, 1.84 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0409 GMT:


Item Current Previous Change PBOC midpoint 6.334 6.3141 -0.31% Spot yuan 6.3292 6.3195 -0.15% Divergence from -0.08%


Spot change YTD 2.81% Spot change since 2005 30.77%


Key indexes:

Item Current Previous Change Thomson 97.05 96.96 0.1

Reuters/HKEX CNH index

Dollar index 90.069 90.139 -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 6.325 0.07% * Offshore 6.453 -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. .

($1 = 6.3261 Chinese yuan)

(Reporting by Winni Zhou and John Ruwitch; Editing by Richard Borsuk)