SHANGHAI, March 6 (Reuters) - China's yuan softened against the dollar on Friday, guided by the central bank's weaker-than-expected fixing as global risk aversion over the spreading coronavirus drove domestic investors to load up on the greenback. Local demand for the dollar comes even as the U.S. currency took a beating against most of its major peers as its yield allure evaporated following the Federal Reserve's emergency interest rate cut this week. Prior to the market open on Friday, the People's Bank of China (PBOC) set the midpoint rate at 6.9337 per dollar, 66 pips or 0.1% firmer than the previous fix of 6.9403. However, several traders said Friday's fixing came in not as high as their projection, a sign the central bank may not want to see the yuan firm significantly in the current environment. Friday's official guidance rate was 63 pips weaker than Reuters' estimate of 6.9274. Although China has had some success in managing the coronavirus outbreak this week, there are concerns about the global spread of the virus and what that would mean for China's already battered economy. "Though onshore disease statistics are improving, offshore they're not. And the staggered effects of a single disease outbreak along a variegated global supply chain suggest economic adjustments will be messy and murky," Cliff Tan, East Asian head of global markets research at MUFG Bank, said in a note. "Risks remain on how COVID-19 proliferates and whether it can be contained in places like South Korea, Japan, Iran and Italy and how all that feeds back into China." Worries over the economic effects of the coronavirus have driven down yields globally as investors move to safer assets, with U.S. stock market plunging and U.S. Treasury yields falling to record lows. China's 10-year government bond yields fell to its lowest in nearly 18 years, while Chinese shares also suffered.
In the spot market, onshore yuan opened at 6.9440 per dollar and was changing hands at 6.9563 at midday, 195 pips weaker than the previous late session close. Several traders said the market will pay close attention to February's trade data, due for release on Saturday, which will give an early read on the impact of the epidemic's hit to the economy. China's central province of Hubei, excluding the provincial capital Wuhan, reported zero new cases of coronavirus over 24 hours for the first time during the outbreak, as authorities continued to contain infections in other parts of the country.
Despite the yuan's move lower against the dollar on Friday, its near-term downside is likely to be limited. If the yuan finishes the late night session at the midday level, the Chinese unit would have risen 0.5% to the dollar for the week, booking the second straight weekly gain, thanks largely to the Fed rate cut that sent the greenback skidding earlier this week. Mounting fears over the fallout from the coronavirus have driven a tectonic shift in expectations for U.S. rates as markets wager the Fed will have to cut rates by 50 basis points for a second time this month. Such easing expectations in the United States and a more dovish Chinese central bank drove long-end swap points to the highest level since March 2018. The global dollar index traded at 96.575 at midday, when the offshore yuan was changing hands at 6.9588 per dollar.
The yuan market at 0402 GMT:
ONSHORE SPOT:Item Current Previous ChangePBOC midpoint 6.9337 6.9403 0.10%Spot yuan 6.9563 6.9368 -0.28%Divergence from 0.33%
midpoint*Spot change YTD 0.10%Spot change since 2005 18.98%
Key indexes:Item Current Previous ChangeThomson 93.14 93.54 -0.4
Reuters/HKEX CNH indexDollar index 96.575 96.82 -0.3
*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 MARKETInstrument Current Difference
from onshoreOffshore spot yuan 6.9588 -0.04%*Offshore 7.054 -1.71%
*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 Brenda Goh; Editing by Sam Holmes)