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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