Yuan slips from one-month high as corporates snap up broadly weaker dollar

SHANGHAI, March 14 (Reuters) - China's yuan slipped on Tuesday from a near one-month high hit a day earlier, as Chinese companies took advantage of broad weakness in the greenback to load up on dollars. The U.S. dollar languished near a multi-week low as fears of a broader systemic crisis following the collapse of a U.S. tech-focused lender left traders speculating that the Fed could pause its aggressive rate-hiking cycle. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8949 per dollar, 426 pips or 0.62% firmer than the previous fix 6.9375, and the strongest for the yuan since March 2. In the spot market, the onshore yuan opened at 6.8549 per dollar and was changing hands at 6.8715 at midday, 240 pips softer than the previous late session close. The yuan had firmed to 6.8345 per dollar on Monday, its strongest level since Feb. 15. Yuan buying by Chinese corporates gathered momentum as the currency broke through resistance levels at 6.90 per dollar and again at 6.85, when last week had been set to weaken past 7.0 per dollar. A trader at a Chinese bank noted that commodity firms were among the major buyers for the U.S. currency to settle their import order payments. Barclays analysts said in a note that after the National People's Congress (NPC) concluded on Monday they expected the USD/CNY rate to track broad dollar moves for the near term, with external factors outweighing domestic drivers. Markets will closely monitor U.S. inflation data due later in the session for clues to what the Federal Reserve will do with interest rates at a policy meeting week. Japan's top brokerage Nomura forecast the Fed will cut rates next week, while Goldman Sachs said it no longer expected a hike. Investors will be watching China's activity indicators due on Wednesday, when the PBOC is also expected to renew its medium-term policy loans, traders said.

"We look for activity numbers to indicate some recovery as the re-opening gains traction," Maybank analysts said in a note. "After-all, this would be the first set of activity indicators for the year and would capture the strength of the economy around the Lunar New Year celebrations." A batch of 200 billion yuan ($29.11 billion) worth of medium-term lending facility (MLF) is due to expire on Wednesday and markets widely believe the central bank would leave the policy rate unchanged during the rollover. "We reckon that the PBOC is eyeing economic recovery for a switch to a wait-and-see mode," Citi analysts said in a note. "We don't see an MLF cut or an loan prime rate (LPR) cut as imminently necessary but closing the gap between interest rates of outstanding and new mortgages could be desirable." By midday, the offshore yuan was trading at 6.8758 per dollar.

The one-year forward value for the offshore yuan traded at 6.7256 per dollar, implying a 2.23% appreciation within 12 months.

The yuan market at 0336 GMT:

ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8949 6.9375 0.62% Spot yuan 6.8715 6.8475 -0.35% Divergence from -0.34%
midpoint*
Spot change YTD 0.41% Spot change since 2005 20.45% revaluation

Key indexes:
Item Current Previous Change

Dollar index 103.872 103.595 0.3

*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 morning. OFFSHORE CNH MARKET

Instrument Current Difference from onshore Offshore spot yuan 6.8758 -0.06%
*
Offshore 6.7375 2.34% 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 Brenda Goh; Editing by Simon Cameron-Moore)

Messaging: winni.zhou.thomsonreuters.com@reuters.net))

Reuters

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Yuan slips from one-month high as corporates snap up broadly weaker dollar

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