September 29, 2017 / 4:35 AM / a year ago

Yuan set for 1st monthly loss in 5 as PBOC caution, dollar bounce tempers rally

    SHANGHAI, Sept 29 (Reuters) - China's yuan fell 0.3 percent
against the U.S. dollar on Friday and looked set to post its
first monthly loss since April, weighed down by a series of
weaker central bank fixings and strong dollar demand heading
into a week-long holiday.
    A sharp reversal in the yuan in recent weeks has shaved its
year-to-date gains against the greenback to around 4 percent,
from 7.5 percent earlier this month.
    Markets believe the currency's rapid rise over the summer 
has unnerved authorities, who feared a blow to China's export
competitiveness and started applying the brakes. The dollar's
recent resurgence has added further pressure.    
    But traders are unsure how much further the central bank
will allow the yuan to slide, especially heading into the highly
sensitive Communist Party Congress in mid-October.
    State banks had been seen selling dollars on Thursday
morning, though not in large volumes, and they did not seem
especially active on Friday.
    Prior to market opening on Friday, the People's Bank of
China lowered its official yuan midpoint for the fifth straight
day to 6.6369 per dollar, the weakest level since
Aug. 25, reflecting weakness in the spot yuan a day earlier.
    The official guidance was 84 pips or 0.13 percent weaker
than the previous fix of 6.6285 on Thursday.
    However, Friday's fixing, like those in the previous three
sessions, was not as weak as markets had expected, possibly
suggesting authorities were now trying to slow the yuan's fall.
    In the spot market, the yuan opened at 6.6655 per
dollar and fell to a low of 6.6842 per dollar at one point in
morning trade, its weakest level since Aug. 16.
    At midday, it was changing hands at 6.6780, 210 pips weaker
than the previous late session close and 0.62 percent softer
than the midpoint.
    If the spot rate closes at that level in late night trading,
the yuan would have lost 1.3 percent for the month, its first
monthly loss since April and its worst monthly performance since
November 2016.
    Traders said dollar buying from bank clients including both
companies and households remained strong on Friday morning as
they shored up dollar holdings ahead of the week-long National
Day holiday starting on Sunday.
    A trader at a foreign bank in Shanghai said most market
participants would square their books by the end of Friday for
their proprietary trade. 
    The domestic foreign exchange market will be shut for the
holiday between Oct.1 and Oct.8. Trading will resume on Oct.9.
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 95.06, weaker than the previous day's
    The global dollar index rose to 93.189 from the
previous close of 93.085. 
    The offshore yuan was trading 0.13 percent firmer than the
onshore spot at 6.6692 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 6.8275, 2.79 percent weaker than the midpoint.
    One-year NDFs are settled against the midpoint, not the spot

    The yuan market at 0355 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.6369   6.6285    -0.13%
 Spot yuan          6.678    6.657     -0.31%
 Divergence from    0.62%              
 Spot change YTD                       4.02%
 Spot change since 2005                23.94%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         95.06       95.17     -0.1
 CNH index                             
 Dollar index    93.189      93.085    0.1
*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 percent from official midpoint rate it sets each

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.6692    0.13%
 Offshore              6.8275    -2.79%
*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 Winni Zhou and John Ruwitch; Editing by Kim
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