August 23, 2019 / 5:07 AM / a month ago

Yuan set for 3rd weekly loss in 4, but PBOC seen tempering pace of depreciation

 (Adds details, comments and background)
    SHANGHAI, Aug 23 (Reuters) - China's yuan fell for a seventh
straight session on Friday, and was on course for its third
weekly loss in four as the United States prepared to ratchet up
tariff pressure next month. 
    The yuan has weakened to fresh 11-1/2 year lows on fading
hopes of a U.S-China trade deal anytime soon, although the Trump
administration says face-to-face talks are still expected in
    The yuan has now depreciated around 2.8% to the dollar since
President Donald Trump said on Aug. 1 he would impose tariffs on
another $300 billion of Chinese goods. Days later, China let the
yuan slip through the closely watched and long supported
7-per-dollar level, and Washington labelled it a currency
    However, traders said China's central bank may have
signalled an intention to stabilise the currency on Friday
through its daily official midpoint setting. Friday's fall of
0.15% was not as sharp as the 0.34% slide in the previous
    Prior to the market opening, the People's Bank of China
(PBOC)lowered its official yuan midpoint to a fresh
11-year low of 7.0572 per dollar, 82 pips weaker than the
previous fix of 7.0490.
    Though it was the weakest guidance rate since March 21,
2008, it was stronger than the 7.0674 level market watchers had
expected. Traders took that as an official attempt to slow the
pace of yuan declines. 
    "The official fixing didn't match our forecast, (the central
bank) must have heavily used its counter-cyclical factor," said
a trader at a Chinese bank in Shanghai.
    China first introduced the unspecified counter-cyclical
factor into its midpoint fixing formula in May 2017 in what
traders believed was a move to reduce price swings and
counteract expectations of further yuan depreciation.
    The central bank was believed to have heavily used the X
factor earlier this month as authorities sought to slow the
currency's decline after letting it breach the key 7 to the
dollar level on Aug. 5.
    In the spot market, onshore yuan opened at 7.0920
per dollar and was changing hands at 7.0937 at midday, 107 pips
weaker than the previous late session close.
    If the yuan finishes the late night session at the midday
level, it would have lost 0.73% to the dollar for the week. 
    Many market participants said they consider 7.1 as China's
floor for the onshore yuan for now, although the offshore yuan
 briefly crossed that level on Friday and weakened to
7.1382 at one point early this month.
    "Corporate dollar buying remained strong today," said a
second trader at a Chinese bank. 
    Unlike earlier in the week, traders said they had not yet 
seen state-controlled banks stepping into the market on Friday.
    Major banks were seen receiving dollar liquidity in the
forwards market before selling the greenback in the onshore spot
market earlier this week, sources told Reuters. And big banks
were also seen selling dollars at around 7.07 per dollar on
Thursday morning.
    In global markets, the greenback was steady in the morning
on expectations U.S. Federal Reserve Chairman Jerome Powell
would stick with his message that the central bank has not
entered a prolonged monetary easing cycle.
    The global dollar index rose to 98.329 at midday from
the previous close of 98.17. 
    The offshore yuan was trading at 7.0978 per dollar
as of midday.
     The yuan market at 0400 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      7.0572   7.049     -0.12%
 Spot yuan          7.0937   7.083     -0.15%
 Divergence from    0.52%              
 Spot change YTD                       -3.11%
 Spot change since 2005                16.67%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         91.72       91.79     -0.1
 CNH index                             
 Dollar index    98.329      98.17     0.2
*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    7.0978    -0.06%
 Offshore              7.155     -1.37%
*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 Simon
Cameron-Moore & Kim Coghill)
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