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China's yuan eases, market unfazed by new PBOC governor appointment

SHANGHAI, March 19 (Reuters) - China's yuan inched lower against the U.S. dollar in thin trade on Monday, reacting to some slight strength in the greenback, while the market took the appointment of China's new central bank governor in stride. Yi Gang, a vice governor of the People's Bank of China (PBOC), was appointed on Monday to take the helm at the central bank. Trade in the yuan showed scant reaction to the appointment, with traders and analysts expecting the new PBOC governor to continue current policies. "We would expect the new governor to treat capital account liberalization realistically and cautiously while capital controls are likely to remain in place for some time yet," economists at Nomura said in a note. Prior to market opening on Monday, the PBOC set the midpoint rate at 6.3320 per dollar, 20 pips firmer than the previous fix of 6.3340 on Friday. Onshore yuan opened at 6.3360 per dollar in the spot market, and was changing hands at 6.3321 at midday, 31 pips weaker than the previous late session's close. Traders said spot yuan remained in rangebound trade on Monday morning, while the market has switched focus to Jerome Powell's first monetary policy meeting as U.S. Federal Reserve Chair this week. A March Fed rate rise has already been priced in, a trader at a foreign bank said, adding that investors would focus on the tempo of further tightening. "Given near-term external risks, we remain tactically long USD/CNY," Nomura said in the note. Some yuan traders suspect the PBOC, after the Fed meeting, may once again follow suit with a modest but symbolic increase in money market rates. Separately, the Chinese currency rose 0.1 percent versus the greenback last week, and on a trade-weighted basis rose 0.18 percent against a basket of its trading partners' currencies, according to official data from the China Foreign Exchange Trade System (CFETS). The index, published on a weekly basis, stood at 96.12 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 97.14, firmer than the previous day's 97.04. The global dollar index rose to 90.273 from the previous close of 90.233. The offshore yuan was trading 0.03 percent firmer than the onshore spot at 6.3301 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 6.457, 1.94 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0415 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.332 6.334 0.03% Spot yuan 6.3321 6.329 -0.05% Divergence from 0.00%

midpoint*

Spot change YTD 2.76% Spot change since 2005 30.71%

revaluation

Key indexes:

Item Current Previous Change Thomson 97.14 97.04 0.1

Reuters/HKEX CNH index

Dollar index 90.273 90.233 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.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.3301 0.03% * Offshore 6.457 -1.94%

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)