Yuan slips before Fed meeting, offshore interbank rate at 4-month high

SHANGHAI, March 19 (Reuters) - China's yuan inched lower
against the dollar on Tuesday, as there was some corporate
buying of the greenback but trading volume was light as the
market awaited results of the U.S. Federal Reserve policy
meeting starting later in the day.
Prior to market opening on Tuesday, the People's Bank of
China (PBOC) set the yuan's midpoint rate at 6.7062
per dollar, 26 pips or 0.04 percent firmer than the previous fix
6.7088.
In the spot market, onshore yuan opened at 6.7150
per dollar and was changing hands at 6.7161 at midday, 26 pips
weaker than the previous late session close and 0.15 percent
softer than the midpoint.
The onshore spot yuan swung in a thin range of less than 50
pips on Tuesday morning. Traders said some corporate interest in
buying dollars emerged when the spot rate rose towards 6.71 per
dollar, and such dollar demand dragged the yuan lower.
But several traders said the market lacks a clear guidance
for now and they expect the yuan to continue trading in tight
ranges before the Fed's decision, due early Thursday Asia time.
On Tuesday, the dollar was near a two-week low, dampened by
expectations the Fed will adopt a more accommodative policy.

In China, a key market focus remained the Sino-U.S. trade
negotiations.
Bill Zhou, analyst at China Construction Bank (Asia) in
Hong Kong, said in a note the yuan has largely reflected
optimistic expectations for the China-United States trade
negotiations but "it will need more positive news to push it up
further".
He said he expects the yuan to track the dollar's movements
in overseas markets this week, staying in a range of 6.68 to
6.76 per dollar.
Hong Kong's overnight yuan borrowing rate was
fixed at 2.73500 percent on Tuesday, the highest level since
Nov. 23 and more than 55 basis points up from the previous fix
of 2.18133 percent.
The CNH Hong Kong Interbank Offered Rate benchmark (CNH
Hibor) is set by the city's Treasury Markets Association (TMA).
A rise in the overnight borrowing costs means signs of
liquidity tightness, which could raise the cost of shorting the
yuan in offshore markets.
Some traders said the sudden tightness was largely due to
quarter-end seasonal demand and they have not yet seen impact on
spot trade.
Separately, traders said spot onshore yuan trade was not
affected by downbeat FX sales data released late Monday showing
China's commercial banks sold a net $15.0 billion of foreign
exchange last month, compared with a net purchase of $12.1
billion in January.
Net sale of FX from commercial banks to their clients could
indicate capital outflows, but traders said the data might have
been distorted by the week-long Lunar New Year holiday, which
fell in early February.
The global dollar index was at 96.416 at midday, from
the previous close of 96.524.
The offshore yuan was trading at 6.717 per dollar
as of midday.


The yuan market at 0400 GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.7062 6.7088 0.04%

Spot yuan 6.7161 6.7135 -0.04%

Divergence from 0.15%
midpoint*
Spot change YTD 2.34%
Spot change since 2005 23.23%
revaluation

Key indexes:

Item Current Previous Change

Thomson 95.47 95.53 -0.1
Reuters/HKEX
CNH index
Dollar index 96.416 96.524 -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
morning.

OFFSHORE CNH MARKET

Instrument Current Difference
from onshore
Offshore spot yuan 6.717 -0.01%
*
Offshore 6.7448 -0.57%
non-deliverable
forwards
**

*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 Richard
Borsuk)


2019-03-19 06:57:27

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