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China's yuan edges up, likely to ease in long run on trade dispute

SHANGHAI, April 9 (Reuters) - China's yuan edged up against the U.S. dollar on Monday, as weaker than expected U.S. jobs data and persistent worries about a trade dispute between Beijing and Washington weighed on the greenback. The dollar steadied in the Asian session, having retreated late last week due to concerns trade tensions and following data that showed the U.S. economy created the fewest jobs in six months in March. But while trade Sino-U.S. frictions have been bearish for the dollar in recent trading sessions, analysts expect they could hit sentiment toward the yuan harder in the longer-term. The latest Reuters poll of nearly 70 foreign exchange strategists conducted April 3-6 showed that the yuan was forecast to shrug off some of the gains it booked so far this year and fall 0.8 percent to 6.35 per U.S. dollar in a year.

Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.3114 per dollar, 188 pips or 0.3 percent weaker than the previous fix of 6.2926 on April 4. Monday's official guidance rate was the weakest since March 26. In the spot market, the onshore yuan opened at 6.3005 per dollar and was changing hands at 6.2962 at midday, 65 pips firmer than the previous late session close and 0.24 percent stronger than the midpoint. China's swift retaliation against the United States' proposed tariffs last week soured the mood and hit market sentiment toward the yuan. While sentiment has recovered slightly since then, a trader at a Chinese bank in Shanghai said the market remained cautious and expects the yuan to trade around 6.3 per dollar level in near term. Tommy Xie, an economist at OCBC Bank in Singapore also said the yuan's recent movements hinge on market expectation on China's possible reaction to the trade tension. "If China is likely to compromise, RMB may appreciate. However if China decides to fight to the end, RMB may depreciate," Xie said in a note. Market participants have now switched their attention to Chinese President Xi Jinping's keynote speech at Boao Forum for Asia on Tuesday, where he is expected to unveil fresh market-opening measures. The Chinese currency weakened 0.45 percent versus the greenback last week, but only edged down 0.11 percent on a trade-weighted basis 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 and monthly basis, stood at 96.62 by the end of last week. A researcher at the government-run China Academy of Social Sciences said at Boao Forum for Asia relieving some market worries that China is unlikely to sell off its holdings of U.S. Treasury bonds at a large scale as a tactic in its trade dispute with the United States. Separately, China's foreign exchange reserves rose slightly in March, official data showed on Sunday, as broad U.S. dollar weakness continued and escalating trade tensions between the world's two largest economies bolstered expectations of a firmer Chinese currency. Reserves rose $9 billion last month to $3.143 trillion, compared with a drop of $27 billion in February, central bank data showed. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.64, firmer than the previous day's 97.56. The global dollar index rose to 90.173 from the previous close of 90.108. The offshore yuan was trading 0.05 percent firmer than the onshore spot at 6.293 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 6.384, 1.14 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0359 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.3114 6.2926 -0.30% Spot yuan 6.2962 6.3027 0.10% Divergence from -0.24%

midpoint*

Spot change YTD 3.35% Spot change since 2005 31.45%

revaluation

Key indexes:

Item Current Previous Change Thomson 97.64 97.56 0.1

Reuters/HKEX CNH index

Dollar index 90.173 90.108 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 6.293 0.05% * Offshore 6.384 -1.14%

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 Sam Holmes)