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Yuan eases as corporate dollar demand remains firm

SHANGHAI, April 3 (Reuters) - China's yuan again eased against the U.S. dollar on Tuesday, as there continued to be corporate demand for the greenback following the previous day's strongest fixing for the Chinese currency since its 2015 devaluation. Globally, the dollar was largely steady against its major trading partners on Tuesday morning. The dollar index, which measures it against six other currencies, was 89.997 as of midday, compared with the previous close of 90.052. Prior to market opening, the People's Bank of China set the midpoint rate at 6.2833 per dollar, 69 pips or 0.1 percent weaker than Monday's fix of 6.2764, the firmest since August 2015. In the spot market, the onshore yuan opened at 6.2845 per dollar and was changing hands at 6.2882 at midday, 72 pips weaker than the previous late session close and 0.08 percent softer than the midpoint. Traders said demand for the dollar, encouraged on Monday by that day's fixing, resumed. Some companies needing dollars "could not hold any longer and came out purchasing the greenback," said a trader at a foreign bank in Shanghai. However, some traders said they were not holding large positions for their proprietary trades ahead of China's tomb-sweeping festival Qingming, for which markets will be closed on Thursday and Friday. Craig Chan, global head of emerging-market FX strategy at Nomura, said markets viewed 6.21 per dollar as a key threshold as the level was last seen in August 2015 when China had a 2 percent one-off devaluation. "We believe that a breach of this level would intensify RMB appreciation expectations towards 6.00," Chan said in the note. Separately, some market participants said one-year dollar contracts against onshore yuan in the swap market continued easing on Tuesday. The one-year contract eased further to 555 points on Tuesday morning, the lowest level since January 2017. As of midday, it was traded at 645 points. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.62, weaker than the previous day's 97.76. The offshore yuan was trading 0.15 percent firmer than the onshore spot at 6.2785 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 6.3741, 1.42 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0418 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.2833 6.2764 -0.11% Spot yuan 6.2882 6.281 -0.11% Divergence from 0.08%

midpoint*

Spot change YTD 3.48% Spot change since 2005 31.62%

revaluation

Key indexes:

Item Current Previous Change Thomson 97.62 97.76 -0.1

Reuters/HKEX CNH index

Dollar index 89.997 90.052 -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 6.2785 0.15% * Offshore 6.3741 -1.42%

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 David Stanway; Editing by Richard Borsuk)