Yuan set for 2 straight weeks of decline as trade caution prevails

SHANGHAI, Nov 22 (Reuters) - China's yuan eased on Friday and is set for its second straight weekly loss as investors grew increasingly cautious about developments in the negotiations between the world's two largest economies. The currency's movements in recent months have mostly been driven by the twists and turns in bilateral talks between China and the United States and are now shrouded by doubts over whether the sides can strike a preliminary agreement any time soon. However, negotiations could now become more complicated with U.S. President Donald Trump expected to sign into law two bills backing protesters in Hong Kong, traders said. "The Hong Kong human rights bill remains a wild card for the market, which may also complicate the trade talks," OCBC Bank said in a note. "It is almost inevitable that the bill will become law within the next 10 days. There are no detailed retaliation plans from Chinese side yet." Prior to market opening on Friday, the People's Bank of China (PBOC) set its midpoint rate at a fresh 2-1/2-week low of 7.0306 per dollar, 89 pips or 0.13% weaker than the previous fix of 7.0217. In the spot market, onshore yuan opened at 7.0266 per dollar and was changing hands at 7.0323 at midday, 36 pips weaker than the previous late session close. If the onshore yuan finishes the late night session at its midday level, it would mark the second straight weekly loss for the currency. Several FX strategists said their forecasts for the yuan's level at the end of the year and into the 2020 will depend on whether Washington adds fresh tariffs on Chinese goods on Dec. 15, as originally threatened. Such concerns were also reflected in options market trading. The one-month contract of the implied volatility, which gauges investors' expectations for swings in the dollar against the yuan in a month's time, rose to the highest level since Oct. 11. China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing amid continued efforts to strike at least a limited deal, the Wall Street Journal reported on Thursday citing unnamed sources. The global dollar index fell to 97.958 at midday from the previous close of 97.993. The offshore yuan was trading at 7.0334 per dollar as of midday.

The yuan market at 0358 GMT:


Item Current Previous ChangePBOC midpoint 7.0306 7.0217 -0.13%Spot yuan 7.0323 7.0287 -0.05%Divergence from 0.02%


Spot change YTD -2.27%Spot change since 2005 17.69%


Key indexes:

Item Current Previous ChangeThomson 92.12 91.96 0.2

Reuters/HKEX CNH index

Dollar index 97.958 97.993 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 7.0334 -0.02%*Offshore 7.096 -0.92%

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 Sam Holmes)