Wires

Yuan off highs as risk aversion grows over global virus worries, oil crash

SHANGHAI, March 9 (Reuters) - Having hit a near seven-week high in early trade on Monday the China's yuan lost most of its gains against the dollar by midday, dragged back along with other Asian currencies by worries over the coronavirus and its global economic impact. Investors were also unsettled by a fall of around 30% in oil prices, after Saudi Arabia slashed prices and set plans for a dramatic increase in crude production in April. The growing risk aversion counteracted the strength the yuan has derived recently from falling U.S. Treasury yields, which have made Chinese bonds attractive. Investors retreat from riskier assets was evident in Chinese share markets, according to a trader at a foreign bank in Shanghai, and the resulting "fund outflows from mainland also dragged the yuan lower." In the spot market, onshore yuan stood at 6.9301 per yuan by midday, still 41 pips stronger than the previous late session close, bur it had suffered a sharp reversal having touched 6.9090 in early trade, its strongest level since Jan. 22. Prior to its open at 6.9100 per dollar, the yuan's daily midpoint rate was set at 6.926 per dollar, 77 pips or 0.11% firmer than the previous fix of 6.9337. It was the yuan's strongest fix set by the People's Bank of China (PBOC) since Feb.3. The yuan's early strength had stemmed from speculation that the U.S. Federal Reserve will cut interest rates again later this month. The resulting widening yield gap between Chinese and U.S> bonds pushed long-end dollar/yuan swaps to multiple year highs. Domestic traders and analysts said they would pay close attention to this month's Loan Prime Rate (LPR) fixing, and any adjustment should bring volatility to the yuan. "A particular important date would be March 19, when the PBOC will have the Fed action early in the morning and may decide what to do before March 20, an LPR fixing date," strategists at BNP Paribas said in a note. China's central bank has rolled out a slew of easing measures in the past month to lower financing costs and prop up an economy reeling from the impact of the corornavirus outbreak. While Italy and South Korea are struggling to contain worsening epidemics, the situation in China has started to show signs of stabilizing. Outside Hubei province, where the epidemic began in December, there were no new locally transmitted cases reported in mainland China for a second straight day.

The global dollar index fell to 95.23 at midday from the previous close of 95.951. The offshore yuan was trading at 6.9306 per dollar as of midday.

The yuan market at 0404 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.926 6.9337 0.11%Spot yuan 6.9301 6.9342 0.06%Divergence from 0.06%

midpoint*

Spot change YTD 0.48%Spot change since 2005 19.43%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.28 93.16 0.1

Reuters/HKEX CNH index

Dollar index 95.23 95.951 -0.8

*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 6.9306 -0.01%*Offshore 7.0232 -1.38%

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; Editing by Simon Cameron-Moore)