September 14, 2018 / 5:01 AM / in 2 months

Yuan weakens after surge on trade talk hopes, on course for weekly loss

SHANGHAI (Reuters) - China’s yuan weakened against the U.S. dollar on Friday, pulled down by companies’ stocking up on lower-priced greenbacks and low expectations that planned Washington-Beijing talks will produce a breakthrough in their trade dispute.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

The Chinese currency was on course for a weekly loss, which would be its 13th in the past 14 weeks. If the onshore spot yuan finishes the late night session at the midday level, it will have lost 0.07 percent against the dollar this week.

Traders said the market had largely digested the news that China and United States would restart trade talks, which helped the yuan strengthen on Thursday.

Chinese officials welcomed an invitation from Treasury Secretary Steven Mnuchin for talks. But U.S. President Donald Trump tempered market expectations, tweeting on Thursday that the U.S. is “under no pressure to make a deal with China”.

Prior to market opening on Friday, the People's Bank of China set the yuan's midpoint rate CNY=PBOC at 6.8362 per dollar, 126 pips or 0.18 percent firmer than the previous fix of 6.8488.

Friday’s guidance rate was 17 pips firmer than Reuters’ estimate of 6.8379 per dollar.

In the spot market, the onshore yuan CNY=CFXS opened at 6.8481 per dollar and was changing hands at 6.8538 at midday, 175 pips weaker than the previous late session close and 0.26 percent softer than the midpoint.

Traders said corporate clients were buying dollars since Thursday afternoon following the rebound in the Chinese currency right after the announcement of coming Sino-U.S. trade talks.

A trader at a Chinese bank said some market participants started taking advantage of tiny price swings at around 6.85 to make multiple intraday trades for profit.

As a result, daily trading volume CNYSPTVOL=CFXT soared. On Friday, the volume as of midday was $21 billion, compared with normal half-day total of $15 billion.

Traders said August economic data released on Friday did not impact the yuan. China reported better-than-expected industrial output and retail sales, but a key investment gauge fell to a fresh record low.

Before the data release, RBC Capital Markets said in a note it expected Chinese data to “start reflecting the government’s pro-growth policy measures in coming months and pressure on CNY to diminish”.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.28, weaker than the previous day’s 93.47.

The global dollar index .DXY rose to 94.521 from the previous close of 94.518.

The offshore yuan CNH=D3 was trading 0.02 percent weaker than the onshore spot at 6.8555 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs)CNY1YNDFOR=, considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.9275, 1.32 percent softer than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

Reporting by Winni Zhou and John Ruwitch; Editing by Richard Borsuk

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