China's yuan slightly softer, faces more downward pressure
SHANGHAI, Sept 2 (Reuters) - China's yuan softened on Friday, but its decline was partly cushioned by a defensive dollar, as investors brace for further depreciation in the Chinese currency in the longer term. The market expects the yuan to face downward pressure from China's slowdown and with U.S. interest rates poised to rise, although the Chinese central bank has reaffirmed its pledge to maintain the yuan's stability. The spot market opened at 6.6778 per dollar and was changing hands at 6.6793 at midday, 13 pips weaker than the previous close. If the yuan closes at the midday level on Friday, it would have depreciated 0.2 percent for the week. It hit a six-week trough earlier this week after Federal Reserve Chair Janet Yellen's upbeat comments on the U.S. economy encouraged traders to raise their bets on a U.S. interest rate hike as early as this month. But on Friday, the dollar was on the back foot after taking a tumble following a surprise contraction in U.S. manufacturing, which cast some doubts on the strength of the recovery in the world's largest economy. Yi Gang, a PBOC deputy governor, said on Thursday that despite the yuan's latest retreat, the currency remained relatively stable. In case of sharp volatility, the central bank would use various policy tools to maintain its stability, Yi told China's central television in an interview on Friday. A Reuters poll published on Thursday found that the yuan was expected to weaken more than previously thought in a year. The survey of over 60 foreign exchange strategists, conducted Aug. 26-Sept. 1, showed the yuan is expected to slip to 6.80 per dollar by end-February, and eventually dip to 6.89 by this time next year - a fall of more than 3 percent from its current level. "It is nearly a consensus that the yuan will generally show a downward trend in coming months, though people differ on how much it will depreciate," said a trader at a European bank in Shanghai. Traders said the PBOC largely stayed on the sidelines on Friday, refraining from intervening to support the yuan. The central bank intervened to prevent the yuan from weakening beyond the psychologically important 6.7 per dollar for about two weeks after the currency briefly fell below that level in mid-July. The yuan has generally softened this year, depreciating nearly 3 percent so far. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.04, weaker than the previous day's 95.26. The offshore yuan was trading -0.14 percent away from the onshore spot at 6.6885 per dollar. The yuan market at 4:30AM429 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.6727 6.6784 0.09% Spot yuan 6.6791 6.678 -0.02% Divergence from 0.10% midpoint* Spot change YTD -2.78% Spot change since 2005 23.92% revaluation Key indexes: Item Current Previous Change Thomson 95.04 95.26 -0.2 Reuters/HKEX CNH index Dollar index 95.604 95.653 -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 6.6885 -0.14% * Offshore 6.8345 -2.37% 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 Lu Jianxin and Nathaniel Taplin; Editing by Jacqueline Wong)
