Yuan edges up on Sino-US trade talk resumption and weaker dollar

SHANGHAI, July 4 (Reuters) - China's yuan edged up against the dollar on Thursday on news that U.S. and Chinese officials will resume trade talks next week to try to resolve a year-long trade war. Expectations of U.S. interest rate cuts as soon as this month also hobbled the dollar. The yuan has been very sensitive to developments in the escalating Sino-U.S. trade dispute, which has heightened pressure on China's already slowing economy. The yuan rallied sharply on Monday after a trade ceasefire was reached during the G20 summit in Japan over the weekend, but then faltered as investors doubted there will be a deal any time soon. Top representatives from the United States and China are arranging to resume talks next week, Trump administration officials said on Wednesday. The dollar against offshore yuan quickly fell following the news, and dragged the dollar against onshore yuan lower, said a trader at a Chinese bank. Prior to the market opening on Thursday, the People's Bank of China (PBOC) set the midpoint rate at 6.8705 per dollar, 65 pips or 0.09 percent weaker than the previous fix of 6.8640. In the spot market, onshore yuan opened at 6.8750 per dollar and was changing hands at 6.8710 at midday, 105 pips stronger the previous late session close. The dollar slipped as downbeat data and falling U.S. Treasury yields fueled expectations the U.S. Federal Reserve will cut interest rates this month for the first time in a decade. "Rising expectations for a Fed rate cut gave the PBOC a breather," said a second trader at a Chinese bank. If the Fed lowers rates in coming months, some analysts believe the PBOC will follow with a cut in one of its many policy rates. But a central bank adviser said on Monday that "very big, new stimulus measures" will not be needed if the trade war does not worsen. Some traders said the gains in the yuan on Thursday were capped by corporate dollar demand as many overseas-listed Chinese companies need to make dollar purchase for their dividend payments, which usually take place in June and July. Markets were largely unfazed by U.S. President Donald Trump's latest criticism of China's foreign exchange policy. "China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA," Trump tweeted. The global dollar index fell to 96.731 at midday from the previous close of 96.768. The offshore yuan was trading at 6.8752 per dollar as of midday.

The yuan market at 0429 GMT:


Item Current Previous ChangePBOC midpoint 6.8705 6.864 -0.09%Spot yuan 6.871 6.8815 0.15%Divergence from 0.01%


Spot change YTD 0.03%Spot change since 2005 20.46%


Key indexes:

Item Current Previous ChangeThomson 93.46 93.27 0.2

Reuters/HKEX CNH index

Dollar index 96.731 96.768 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 6.8752 -0.06%*Offshore 6.9051 -0.50%

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 Kim Coghill)