Yuan pulls back after hitting 1-week high, sentiment improves

SHANGHAI, April 11 (Reuters) - The Chinese yuan pared gains after hitting its highest in more than a week against the U.S. dollar on Wednesday, but the market's outlook for the currency firmed as policymakers offered more details on the opening up of China's financial sector. Beijing laid out a clearer timetable on Wednesday for opening its financial sector to more foreign investment by the end of 2018. China will allow domestic and foreign financial firms to compete on an equal footing and "sharply" expand the business scope for foreign banks, central bank governor Yi Gang said at the Boao Forum for Asia in Hainan province. Market participants also said optimism that a full-blown trade war between the United States and China will be averted strengthened after Chinese President Xi Jinping's pledge on Tuesday to lower import tariffs. Prior to market opening, the People's Bank of China set the midpoint rate at 6.2911 per dollar, 160 pips or 0.25 percent firmer than the previous fix of 6.3071. In the spot market, the onshore yuan opened at 6.2820 per dollar, rising to a high of 6.2800 before changing hands at 6.2818 at midday, 8 pips weaker than the previous late session close but 0.15 percent firmer than the midpoint. Domestic traders said although yuan direction was clouded by uncertainty in the dollar, buying interest in the greenback picked up when the spot rate approached 6.28, dampening the yuan's resilience. In overseas markets, the dollar traded near a two-week low against a basket of major currencies. The global dollar index , a gauge that measures the unit's strength against six other currencies, stood at 89.572 as of midday, not far from a low of 89.544 set on Tuesday, its lowest since March 28. Some traders had expected the yuan to be stuck in narrow ranges around 6.3 per dollar before the opening-up measures were announced, but added that market sentiment and onshore yuan volatility have since picked up. One-month implied volatility in yuan options, which gauges investors' expectations for swings in the dollar against the Chinese currency, rose to the highest since March 29 on Wednesday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.93, firmer than the previous day's 97.74. The offshore yuan was trading 0.07 percent firmer than the onshore spot at 6.2773 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 6.369, 1.22 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0439 GMT:


Item Current Previous Change PBOC midpoint 6.2911 6.3071 0.25% Spot yuan 6.2818 6.281 -0.01% Divergence from -0.15%


Spot change YTD 3.58% Spot change since 2005 31.75%


Key indexes:

Item Current Previous Change Thomson 97.93 97.74 0.2

Reuters/HKEX CNH index

Dollar index 89.572 89.587 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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.2773 0.07% * Offshore 6.369 -1.22%

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 Jacqueline Wong)