April 17, 2017 / 5:51 AM / 3 months ago

Yuan softens with solid China GDP priced in, no MLF rate change

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FILE PHOTO - 100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013.Jason Lee/File Photo

SHANGHAI (Reuters) - China's yuan slipped against the U.S. dollar on Monday, after the central bank set a weaker midpoint and injected funds into the money market via medium-term lending facility (MLF) loans for which interest rates were unchanged.

More funds in the financial system and no increase in the money rates helped ease concerns about tight liquidity that had recently given rise to expectations the yuan would firm.

A flurry of economic data released on Monday morning, including better-than-expected economic growth in the first quarter, was largely priced in, traders said.

The People's Bank of China set the midpoint rate at 6.8785 per dollar prior to market open, weaker than the previous fix of 6.8740.

The spot market opened at 6.8842 per dollar and was trading at 6.8880 at midday, 25 pips weaker than the previous late session close and 0.14 percent lower than the midpoint. Spot yuan is allowed to trade within a range of 2 percent on either side of the official mid-point.

China's economy grew 6.9 percent in the first quarter from a year earlier, slightly faster than expected and well above Beijing's full-year target of 6.5 percent, adding to signs of recovery in the world's second-largest economy.

Factory output growth in March was the fastest since December 2014, beating expectations.

On Monday, China's central bank injected 495.5 billion yuan ($71.98 billion) via its medium-term lending facility (MLF), with interest rates unchanged. It did not conduct reverse repurchase agreements.

"The GDP figure has been largely priced in. Be it better or worse, its influence on the yuan is really limited," said a trader in a Japanese bank in Shanghai.

The trader said expectations for the yuan to rise were softened by unchanged MLF interest rates.

Guan Tao, a former official at the State Administration of Foreign Exchange, said factors to support the stability of China's yuan exchange rate were accumulating, such as a stable domestic economy and neutral monetary policy, the China Securities Journal reported on Monday.

The global dollar index fell to 100.4 from the previous close of 100.56, after U.S. retail sales fell for a second straight month in March and consumer prices dropped for the first time in just over a year.

Recent dollar volatility has had less of an impact on the yuan due to China's tight capital controls, said a trader from a Chinese commercial bank in Shanghai.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.21, firmer than the previous day's 94.2.

The offshore yuan was trading 0.11 percent away from the onshore spot at 6.8805 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 7.061, 2.58 percent weaker than the midpoint.

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

Reporting by Jackie Cai and John Ruwitch; Editing by Jacqueline Wong

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