July 16, 2020 / 4:51 AM / 21 days ago

China's yuan weakens as U.S. tensions overshadow Q2 GDP growth

    * Yuan changing hands at 6.9968 per dollar at midday
    * PBOC sets strongest yuan fixing since March 12
    * Dollar index rises as Sino-U.S. tension simmer

    SHANGHAI, July 16 (Reuters) - The yuan weakened on Thursday
as rising U.S.-China tensions overshadowed data showing the
Chinese economy grew at a faster-than-expected pace in the
second quarter as it rebounded from the coronavirus crisis.
    The economy grew 3.2% in the second quarter from a year
earlier, faster than the 2.5% analysts had expected and bouncing
back from a record contraction early in the year.
    But it was still the weakest expansion on record, and
lacklustre consumption figures suggested policymakers will have
to extend more support to get the economy back on solid footing.
    Spot yuan had opened slightly stronger at 6.9830
per dollar after the People's Bank of China set the midpoint
rate at 6.9913 per dollar prior to market open, its
firmest fixing since March 12.
    But by midday it had given up the gains and was changing
hands at 6.9968 per dollar, 83 pips weaker than Wednesday's late
session close. 
    The offshore yuan was at 6.9969 per dollar, about
0.2% weaker on the day.
    "The (GDP) data didn't have a big impact on the yuan. At the
moment it's the U.S. dollar index that's deciding the behaviour
of the exchange rate," said Xing Zhaopeng, markets economist at
ANZ in Shanghai.
    The dollar index had weakened overnight amid news of
positive early results in an experimental COVID-19 vaccine study
by U.S. researchers.
    But the greenback strengthened again on Thursday, with the
global dollar index rising to 96.123 from the previous
close of 96.007. 
    Investor have been unsettled by disputes between the United
States and China over the control of advanced technologies and
the protection of civil liberties in Hong Kong, as well as a
second wave of coronavirus infections.
    "We're out of good news. Stocks are down and bonds are up,"
said a trader at a Chinese banks, referring to a pause in a
recent equity bull run in China. "But in the mid-term, the
dollar is still looking weaker. A dollar rebound and yuan
correction are likely short term."
    Another trader at a Chinese bank said he expected the
currency to fluctuate in the region of 6.95 to 7.05 per dollar
in the near term.    
   
    The yuan market at 4:00AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9913   6.9982    0.10%
                                       
 Spot yuan          6.9968   6.9885    -0.12%
                                       
 Divergence from    0.08%              
 midpoint*                             
 Spot change YTD                       -0.48%
 Spot change since 2005                18.29%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         92.61       92.49     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    96.123      96.007    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% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.9969    0.00%
        *                        
 Offshore              7.12      -1.81%
 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 Andrew Galbraith and Jindong Zhang; additional
reporting by Noah Sin in Hong Kong; Editing by Kim Coghill)
  
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