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Yuan eases on soft inflation data, Sino-U.S. tensions

    SHANGHAI, Oct 15 (Reuters) - China's yuan slipped on
Thursday, as data showed Chinese inflation remained soft despite
a broader economic recovery while ongoing Sino-U.S. tensions
also weighed. 
    China has seen a steady recovery since being hard hit by the
coronavirus pandemic earlier this year. But data showing factory
gate prices fell at a faster-than-expected pace in September and
consumer inflation slowed to its weakest in 19 months
underscored some of the challenges still facing the world's
second-largest economy.
    There were also concerns that a move by the Trump
administration to appoint a senior U.S. human rights official as
a special coordinator for Tibetan issues could further increase
tensions between Washington and Beijing.
    "It is worth watching if the deepening PPI deflation will
signal softening momentum for the China recovery. All in all,
the CPI inflation development is unlikely to constrain the
PBOC's capability for further easing," Ken Cheung, chief Asia FX
strategist at Mizuho, said in a report.  
    Prior to the market open, the People's Bank of China set the
midpoint rate at 6.7374 per dollar, 99 pips firmer
than the previous fix of 6.7473. 
    The spot market opened at 6.7300 per dollar and
was changing hands at 6.7235 at midday, 99 pips weaker than the
previous late session close.
    Traders said the yuan had become range-bound and more
susceptible to changes in the U.S. dollar over the short-term
after changes to the PBOC policy. The PBOC over the weekend
scrapped a requirement for banks to hold a reserve of yuan
forward contracts.
    The dollar inched higher on Thursday as rising coronavirus
cases and scant progress towards a U.S. stimulus deal unsettled
investors.  
    On the policy front, the People's Bank of China (PBOC) said
in a statement it was keeping the rate on one-year medium-term
lending facility (MLF) loans to financial institutions steady at
2.95% from previous operations.
    China's new bank loans grew more than expected in September
fuelled by a jump in corporate loans. 
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 94.82, firmer than the previous day's
94.63. 
    The global dollar index fell to 93.421 from the
previous close of 93.429. 
    The offshore yuan was trading at 6.7183 per dollar
by midday. 
    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 6.8869, -2.17 percent away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.


    The yuan market at 4:04AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.7374   6.7473    0.15%
                                       
 Spot yuan          6.7235   6.7136    -0.15%
                                       
 Divergence from    -0.21%             
 midpoint*                             
 Spot change YTD                       3.57%
 Spot change since 2005                23.10%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         94.82       94.63     0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.421      93.429    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% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.7183    0.08%
        *                        
 Offshore              6.8869    -2.17%
 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 Luoyan Liu, Jindong Zhang and Andrew Galbraith;
Editing by Ana Nicolaci da Costa)
  
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