Yuan inches lower amid uncertainty over Sino-U.S. trade agreement

SHANGHAI, Nov 18 (Reuters) - China's yuan inched lower against the dollar on Monday, as investors remained cautious over whether the United States and China will agree a preliminary trade agreement to call a halt their damaging trade war. Chinese state media Xinhua said on Sunday that China and the United States had "constructive talks" on trade in a high-level phone call on Saturday, but it gave no further details.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.0037 per dollar, 54 pips or 0.08% firmer than the previous fix of 7.0091. In the spot market, onshore yuan opened at 7.0150 per dollar and was changing hands at 7.0107 at midday, 35 pips weaker than late session close. Some analysts noted that wording for the FX policy in the PBOC's third quarter monetary policy report was slightly changed from past reports, as it failed to mention "strengthening macroprudential management." "Given positive development in trade talks, it makes sense for the PBOC to feel less pressured to intervene in the FX market, and under those circumstances maintaining RMB stability could be less of a constraint for monetary policy going forward," economists at Goldman Sachs said in note. Separately, China's central bank unexpectedly trimmed a key interbank lending rate on Monday, the first easing in the liquidity tool in more than four years and a signal to markets that policymakers are ready to act to prop up slowing growth.

The rate cut bolstered bond market sentiment, Though the currency market showed little reaction, a loosening bias could lead to downside pressure on the yuan over the long run. The global dollar index fell to 97.911 at midday from the previous close of 97.999. The offshore yuan was trading at 7.012 per dollar as of midday.

The yuan market at 0405 GMT:


Item Current Previous ChangePBOC midpoint 7.0037 7.0091 0.08%Spot yuan 7.0107 7.0072 -0.05%Divergence from 0.10%


Spot change YTD -1.96%Spot change since 2005 18.06%


Key indexes:

Item Current Previous ChangeThomson 92.2 92.33 -0.1

Reuters/HKEX CNH index

Dollar index 97.911 97.999 -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.


Instrument Current Difference

from onshore

Offshore spot yuan 7.012 -0.02%*Offshore 7.0741 -1.00%

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 Simon cameron-Moore)