Top Stories
Top Stories
Wires

Yuan extends losses as dollar firms on risk-off mood

SHANGHAI, Aug 13 (Reuters) - China's yuan extended losses on Tuesday as the dollar gained traction on global risk-off sentiment after protests in Hong Kong and a crash in Argentina's peso. Deepening unrest in Hong Kong and surprise primary election results in Argentina have significantly affected investors' appetite for risk. Prior to market opening on Tuesday, the People's Bank of China (PBOC) lowered its midpoint rate for the ninth straight trading session to 7.0326 per dollar. That was 0.16% weaker than the previous fix and the weakest since March 25, 2008. But the official midpoint continued to be set firmer than market expectations, traders said, a situation that has been persistently seen since last week after Beijing let its currency weaken past the key 7 per dollar level. The fixing was 95 pips, or 0.14%, firmer than Reuters' estimate of 7.0421 per dollar. In the spot market, onshore yuan opened at 7.0599 per dollar and was changing hands at 7.0638 at midday, 53 pips weaker than the previous late session close. Tommy Xie, head of Greater China research at OCBC Bank in Singapore, said recent firmer-than-expected fixings suggested that the central bank might have used the counter-cyclical factor to slow the pace of yuan depreciation. "RMB is likely to be more volatile in the short term to absorb the external shock," he said in a note. "As all the counter-cyclical measures are still in place, we think China will not hesitate to intervene should RMB deviate too much from its fundamental level." External risks, domestic economic slowdown and uncertainty around the year-long Sino-U.S. trade tensions have all piled pressure on the yuan. Several traders said the spot rate has been steadily trading lower this week and they see the next support level at 7.1 per dollar. A trader at a Chinese bank said the market has turned cautious and is waiting to see if the central bank will take any action if the next key level is breached. Another trader said sentiment was bearish as many investors had recently signed dollar/yuan call options at 7.3 per dollar towards the end of this year. Separately, expectations for further monetary policy easing are likely to put additional downside pressure on the yuan after downbeat July loan growth data, traders and analysts said.

"The slowing China credit creation in July has signaled a higher chance for PBOC targeted RRR cuts the rest of this year," said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong. Yuan borrowing costs edged up offshore on Tuesday morning as seen from rises in the CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city's Treasury Markets Association (TMA). The overnight contract rose to 2.96828%, the highest since July 22, and was 43 basis points higher than the previous fix of 2.53517%. Higher CNH funding costs could discourage yuan short-sellers as their borrowing costs rise dramatically, traders said, noting that a central bank bill auction in Hong Kong on Wednesday will also lead to funds being tied up. The global dollar index rose to 97.597 at midday from the previous close of 97.38. The offshore yuan was trading at 7.0981 per dollar.

The yuan market at 0453 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 7.0326 7.0211 -0.16%Spot yuan 7.0638 7.0585 -0.08%Divergence from 0.44%

midpoint*

Spot change YTD -2.70%Spot change since 2005 17.17%

revaluation

Key indexes:

Item Current Previous ChangeThomson 91.49 91.44 0.1

Reuters/HKEX CNH index

Dollar index 97.597 97.38 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 7.0981 -0.48%*Offshore 7.1434 -1.55%

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)