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UPDATE 1-China's yuan weakens, prompting dollar sales by state banks
March 9, 2017 / 4:53 AM / 7 months ago

UPDATE 1-China's yuan weakens, prompting dollar sales by state banks

    * Strong corporate dollar purchases pull the yuan down
    * Yuan touches lowest level since mid-January
    * Big state-owned banks sell dollars, halt slide - traders

 (Adds trader comments, details)
    SHANGHAI, March 9 (Reuters) - China's yuan weakened against
the dollar on Thursday on strong corporate demand for the
greenback, forcing state-owned banks to offer dollar liquidity
to keep the Chinese currency from falling too fast, traders
said.
    Major state-owned banks were seen selling dollars in the
onshore foreign-exchange market, according to three traders.
They said the selling was a bid to support the yuan
after it weakened past 6.92 to the dollar in early trade.
    Prior to market open, the People's Bank of China set the
midpoint rate at 6.9125 per dollar, weaker than
Wednesday's fix of 6.9032. 
    The spot market opened at 6.9131 per dollar and was changing
hands at 6.9188 at midday after hitting a low of 6.9207, the
weakest since mid-January. The midday level was 53 pips weaker
than the previous late session close and 0.09 percent softer
than the midpoint.
    The traders said that before the state banks entered the
market - which halted the yuan's slide - heavy dollar purchases
by companies plus a rising greenback in global markets weighed
on the Chinese currency.
    "Companies' willingness to buy dollars was quite strong
today. The quicker the yuan depreciates, the more dollars
companies purchase," said one trader at a foreign bank in
Shanghai.
    A second trader said it was "normal" for the state banks to
offer dollars in such a situation as Beijing is holding its
annual parliamentary meetings. 
    Traditionally, Chinese authorities have sought to keep the
currency stable during major political events.
    A subtle change in the language used to describe the yuan in
Premier Li Keqiang's work report to parliament on Sunday had
sparked some speculation policymakers are now less willing to
defend the Chinese currency. But traders in China said the
change wouldn't affect the spot market.
    A pledge made in previous years to "keep the yuan stable at
an appropriate and balanced level" was missing, and Li said the
exchange rate "will be further liberalised, and the currency's
stable position in the global monetary system will be
maintained."
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 95.06, firmer than the previous day's
94.94. 
    The global dollar index rose to 102.2 from the
previous close of 102.07, not far from a March 2 peak of 102.26,
level unseen since Jan. 11.
    The offshore yuan was trading 0.12 percent weaker than the
onshore spot at 6.9268 per dollar. 
    Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan's value, traded
at 7.165, 3.52 percent weaker than the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9125   6.9032    -0.13%
                                       
 Spot yuan          6.9188   6.9135    -0.08%
                                       
 Divergence from    0.09%              
 midpoint*                             
 Spot change YTD                       0.40%
 Spot change since 2005                19.62%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.06       94.94     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    102.2       102.07    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
                                 from onshore
 Offshore spot yuan    6.9268    -0.12%
        *                        
 Offshore              7.165     -3.52%
 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 Richard
Borsuk)
  

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