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China's yuan weakens, takes GDP data in stride

SHANGHAI, Jan 21 (Reuters) - Broad dollar strength served to push the yuan weaker on Monday as the market also digested data showing China's economy slowed slightly in the fourth quarter amid U.S.-Sino trade tensions. Traders cited little reaction to the economic data, which largely matched expectations for further slowdown in the world's second-largest economy this year. The economy grew 6.4 percent in the fourth quarter from a year earlier, slower than 6.5 percent in the third, hurt by higher U.S. tariffs and weaker demand at home. For the full-year, the economy grew 6.6 percent which was the weakest in 28 years. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7774 per dollar, 124 pips or 0.18 percent weaker than the previous fix of 6.7665. In the spot market, the onshore yuan opened at 6.7949 per dollar and was changing hands at 6.7877 at midday, 82 pips weaker than the previous late session close and 0.15 percent softer than the midpoint. "The GDP data had very limited impact on the market...before the Lunar New Year holiday, the key drivers will become global dollar index's performance and trade negotiations," said a chief trader at a Chinese bank in Shanghai. The week-long Lunar New Year holiday falls in early February this year. In global markets, the U.S. dollar hovered near its two-week high against a basket of currencies on Monday as China and the United States seek to resolve their differences and a more dovish sounding Federal Reserve. U.S. President Donald Trump said on Saturday there has been progress toward a trade deal with China, but denied that he was considering lifting tariffs on Chinese imports. "With the bilateral U.S.-China trade deficit still widening to record levels, it is premature to expect the U.S. to lower existing tariffs on Chinese goods," said Philip Wee, strategist at DBS, in a note. Wee sees the yuan weakening past 7 per dollar this year. Separately, data showed last Friday that China's commercial banks sold a net $7.1 billion worth of foreign exchange in December, down from $17.9 billion a month earlier. A drop in net sales could mean less pressure from capital outflows and take some heat off the yuan. The offshore yuan was trading at 6.7969 per dollar at midday.

The yuan market at 0341 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.7774 6.7665 -0.16%Spot yuan 6.7877 6.7795 -0.12%Divergence from 0.15%

midpoint*

Spot change YTD 1.26%Spot change since 2005 21.93%

revaluation

Key indexes:

Item Current Previous ChangeThomson 94.3 94.37 -0.1

Reuters/HKEX CNH index

Dollar index 96.297 96.336 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 6.7969 -0.14%*Offshore 6.8225 -0.66%

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)