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China's yuan inches up on corporate dollar sales, set for 5th quarter of gains

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SHANGHAI, March 29 (Reuters) - China's yuan inched up slightly against the U.S. dollar on Thursday despite a much weaker official fixing and looked set to post its fifth straight quarterly gain, its longest winning streak since 2013. The dollar eased on Thursday, pulling back from a one-week high against its peers. Prior to the market opening, the People's Bank of China lowered its official yuan midpoint by the most in seven weeks to 6.3046 per dollar, 261 pips, or 0.4 percent, weaker than Wednesday's fix of 6.2785. The move in the official guidance rate was the biggest one-day weakening in percentage terms since Feb. 9. In the spot market, the yuan opened at 6.2990 per dollar and was changing hands at 6.2920 at midday, 64 pips firmer than the previous late session close and 0.20 percent stronger than the midpoint. Traders said corporate selling pressure on the greenback strengthened at around 6.3 per dollar following the weakened official guidance rate. Some traders expect the yuan is moving to a slightly firmer range of 6.25 to 6.3 in the near term, after sticking to 6.3-6.36 in the past two months. The yuan has now appreciated 3.4 percent against the dolalr so far this year, with solid gains in recent sessions. But investors are not convinced with its recent rally, said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, adding they attempted to buy back dollars at the lows. Although concerns over a possible trade war between the United States and China have eased somewhat on reports that two sides are in talks, the issue remains a focus for financial markets. Earlier on Thursday, China's commerce ministry said China does not want a trade war with the United States, but it won't accept any negotiations if they are hijacked unilaterally.

The trade tensions "may have made Chinese officials more willing to tolerate upward pressure on the renminbi generally, in a bid to appease the U.S.," Capital Economics said in a note this week. "While the move has not been very large, the Chinese currency has risen by more in trade-weighted terms so far this year than it did over 2017 as a whole." Separately, Goldman Sachs has upped its 12-month forecast for the yuan to 6.20 per dollar from 6.45 previously, predicting that trade relations with the United States would limit China's ability to weaken its currency. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.69, firmer than the previous day's 97.62. The offshore yuan was trading 0.10 percent firmer than the onshore spot at 6.2857 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 6.393, 1.38 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0420 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.3046 6.2785 -0.41% Spot yuan 6.292 6.2984 0.10% Divergence from -0.20%

midpoint*

Spot change YTD 3.42% Spot change since 2005 31.54%

revaluation

Key indexes:

Item Current Previous Change Thomson 97.69 97.62 0.1

Reuters/HKEX CNH index

Dollar index 89.942 90.058 -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 6.2857 0.10% * Offshore 6.393 -1.38%

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 Kim Coghill)