China's yuan eases on weaker midpoint as dollar rebounds
SHANGHAI, May 4 (Reuters) - The yuan inched lower against the dollar on Wednesday, after the central bank weakened its official guidance rate the most since last August, as the dollar index pulled away from its multi-month trough. The People's Bank of China set the midpoint rate at 6.4943 per dollar prior to market open, 0.6 percent weaker than the previous fix of 6.4565. Traders said that was in line with the PBOC's recent reforms to allow for a more market-oriented currency policy and two-way volatility. The spot market opened at 6.4930 per dollar and was changing hands at 6.4973 at midday, easing 0.07 percent from the previous close, or 30 pips weaker than the midpoint, compared with a gap of almost 200 pips on Tuesday. On Friday, China's foreign exchange regulator said it would allow banks to issue more FX-related products for risk-hedging purposes, allowing banks to hold bigger short-dollar positions at the end of the day. Traders reported the new measure has no immediate impact on the market given depreciation pressure on the yuan has largely ebbed. "But it could let banks offer more dollars if the yuan comes under renewed downward pressure. This is good timing when the market is relatively calm," said a trader at a Chinese bank in Shanghai. The offshore yuan was trading 0.15 percent softer than the onshore spot at 6.5071 per dollar. Offshore one-year non-deliverable forwards contracts , considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.6785, or 2.76 percent weaker than the midpoint. The yuan market at a glance: ONSHORE: Item Current Previous Change PBOC midpoint 6.4943 6.4565 -0.58% Spot yuan 6.4973 6.4928 -0.07% Divergence from 0.05% midpoint* Spot change YTD -0.06% Spot change since 2005 27.38% revaluation *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 6.5071 -0.15% * Offshore 6.6785 -2.76% 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 the Shanghai Newsroom; Editing by Jacqueline Wong)
