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Yuan snaps 4 days of losses on corporate dollar sales, firmer fixing

SHANGHAI, May 8 (Reuters) - China's yuan edged up against the dollar for the first time in five days on Wednesday, underpinned by a rise in corporate dollar selling after the central bank set a firmer midpoint. Prior to market open, the People's Bank of China (PBOC) set the midpoint rate at 6.7596 per dollar, 18 pips or 0.03 percent firmer than the previous fix of 6.7614. In the spot market, onshore yuan opened at 6.7750 per dollar and was changing hands at 6.7715 at midday, 65 pips firmer than the previous late session close but 0.18 percent softer than the midpoint. Asian risk assets remain under pressure over a re-escalation of tensions between China and the Unites States but the Chinese currency snapped days of losses as traders said corporate clients chose to liquidate their dollar positions to lock in profits. "Corporate dollar selling was quite strong in the morning session, as current (USD/CNY) levels are already much higher than months ago," said a trader at a Chinese bank. He said many domestic companies who did not have urgent needs for the renminbi hesitated to convert their dollars for a few months awaiting a more favorable exchange rate. A second trader at a foreign bank said uncertainty over the next round of bilateral trade negotiations in Washington prompted the corporate dollar sales. Most traders were also unwilling to hold large positions and kept in step with trends on Wednesday to offload dollars. The yuan was volatile this week after U.S. President Donald Trump said he would raise existing tariffs on Chinese goods from Friday and impose fresh levies soon. Market sentiment recovered slightly after Beijing confirmed its top negotiator would go to Washington as planned for the next round of trade talks on Tuesday. "The market could be under-pricing the possibility that U.S.-China trade negotiations could stall, in our view," Becky Liu, head of China macro strategy at Standard Chartered Bank in Hong Kong, said in a note. "While we continue to see a low probability of no-deal, we do see a good chance that the U.S. will raise tariffs to 25 percent this Friday and that the trade negotiations could stall for some time." Liu expects the onshore yuan may retreat to 6.85-6.90 per dollar if negotiations stall. Separately, spot yuan was little affected by China's April trade data on Wednesday showing exports unexpectedly fell 2.7 percent from a year earlier, while imports grew by a surprising 4 percent, their first increase in months. "The trade figures are backward looking and the trend could reverse its course when China and the U.S. fail to strike a trade deal," said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong. On Tuesday, China's foreign exchange reserves in April also unexpectedly fell for the first time in six months, but worries about global flight were tempered as the forex regulator said cross-border capital flows will be basically stable in future.

The global dollar index fell to 97.457 at midday from the previous close of 97.628. The offshore yuan was trading at 6.7888 per dollar as of midday.

The yuan market at 0401 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.7596 6.7614 0.03%Spot yuan 6.7715 6.778 0.10%Divergence from 0.18%

midpoint*

Spot change YTD 1.50%Spot change since 2005 22.23%

revaluation

Key indexes:

Item Current Previous ChangeThomson 95.4 95.48 -0.1

Reuters/HKEX CNH index

Dollar index 97.457 97.628 -0.2

*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 6.7888 -0.25%*Offshore 6.8112 -0.76%

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 Andrew Galbraith Editing by Jacqueline Wong)