SHANGHAI, Oct 25 (Reuters) - China's yuan inched lower against the dollar in thin trade on Friday, reflecting a slightly weaker midpoint fixing, and investors waited for developments that could signal a clear direction for the Chinese currency. Some traders shrugged off a speech by U.S. Vice President Mike Pence criticising China, and said the yuan will be only affected by news on trade negotiations that signals whether a partial Sino-U.S. trade deal can be reached in November.
Prior to market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate at 7.0749 per dollar, 22 pips weaker than the previous fix of 7.0727. In the spot market, onshore yuan opened at 7.0733 per dollar and was changing hands at 7.0725 at midday, 30 pips weaker than the previous late session close. If the onshore yuan finishes the late night session at the midday level, it would have gained 0.12% against the dollar for the week and produced a third straight weekly gain. The spot yuan swung in an extremely tight range of about 60 pips on Friday morning, with trading volume also shrunk to $11.96 billion, down from normal half-day volume of about $15 billion. Carie Li, economist at OCBC Wing Hang Bank in Hong Kong, said market will be focussed on whether China and the United States can sign the phase one deal at November's Asia Pacific Economic Cooperation (APEC) summit and push forward with the second phase negotiations. "Unless the U.S. side agrees not to implement the fresh tariffs scheduled for Dec. 15, it will be hard for the yuan to strengthen," Li said. Two traders who reported state-owned banks conducting large buy-sell swaps in the onshore market on Thursday said there was no such activity on Friday morning. And there was no sign that big banks were immediately selling in the spot market the dollars acquired earlier. One of the traders believed the operation was a rollover of ones the banks conducted a year earlier. State banks, who usually act on behalf of the central bank in China's currency market, conducted significant amounts of buy-sell swaps in August after the yuan breached the key 7 per dollar level for the first time since global financial crisis. Buy-sell swaps help to reduce the supply of dollars that the market can access to short-sell the yuan. Separately, spot yuan trade was not affected by the central bank's large liquidity injection this week. The PBOC injected a net 560 billion yuan ($79.18 billion) through reverse repos in open market operations this week, the biggest weekly net cash injection in more than nine months. The global dollar index rose to 97.692 at midday from the previous close of 97.631. The offshore yuan was trading at 7.0721 per dollar as of midday.
The yuan market at 0340 GMT:
Item Current Previous ChangePBOC midpoint 7.0749 7.0727 -0.03%Spot yuan 7.0725 7.0695 -0.04%Divergence from -0.03%
Spot change YTD -2.82%Spot change since 2005 17.02%
Item Current Previous ChangeThomson 91.48 91.47 0.0
Reuters/HKEX CNH index
Dollar index 97.692 97.631 0.1
*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
Offshore spot yuan 7.0721 0.01%*Offshore 7.1266 -0.73%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
($1 = 7.0727 Chinese yuan)
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Richard Borsuk)