Yuan firms, but gains capped as risk aversion supports greenback

    SHANGHAI, Oct 14 (Reuters) - China's yuan firmed on
Wednesday as the market continued to digest a central bank move
over the weekend to arrest recent gains that led to a plunge
earlier in the week, but growing risk aversion supported the
dollar and capped its rise.
    Before the market open, the People's Bank of China (PBOC)
set the midpoint rate of the yuan's daily trading band
 at 6.7473 per dollar, weaker than the previous fix of
6.7296, but closer to market expectations.
    Spot yuan opened at 6.7448 per dollar and firmed
to 6.7405 at midday, 45 pips stronger than the previous late
session close.
    The offshore yuan firmed to 6.735 per dollar from
Tuesday's close of 6.7398.
    Even after Wednesday's small gains, the onshore yuan is
about 0.66% weaker against the dollar than its late session
closing level on Friday, after the PBOC on the weekend scrapped
a requirement for banks to hold a reserve of yuan forward
    The announcement removed a guard against depreciation and
sent the currency to its steepest drop since March on Monday,
though international banks say the move is likely to have little
longer-term impact. 
    A trader at a Chinese bank said the yuan would remain
rangebound given a lack of direction in the dollar, but that in
the longer term there was reason to be optimistic about the
yuan's prospects.
    "In the short term the yuan will still trade in a range.
There is still support at the USDCNY lows in March-April 2019,
and there seems to be dollar selling around 6.75-6.76," said
another trader at a foreign bank. 
    The yuan's firmer position on Wednesday followed a slight
strengthening on Tuesday, supported by upbeat trade data that
showed Chinese imports grew at their fastest pace this year in
September, while exports extended their strong gains as more
trading partners lifted coronavirus restrictions.
    "The steady recovery and widened interest rate spread
between China and the U.S. both bode well for the RMB in the
near term," analysts at ANZ said in a note.
    On Wednesday, the global dollar index stood at 93.53,
just shy of its previous close of 93.542. The greenback has
maintained its strength amid renewed questions about a
coronavirus vaccine and little progress on the passage of U.S.
fiscal stimulus.

    The yuan market at 4:00AM GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.7473   6.7296    -0.26%
 Spot yuan          6.7405   6.745     0.07%
 Divergence from    -0.10%             
 Spot change YTD                       3.30%
 Spot change since 2005                22.79%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         94.55       94.31     0.3
 CNH index                             
 Dollar index    93.53       93.542    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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.735     0.08%
 Offshore              6.9028    -2.25%
*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; Editing by
Stephen Coates)