Yuan eases after flurry of official warnings, but bullish bets rise

SHANGHAI: China's yuan eased against the dollar on Thursday after policymakers repeatedly came out to tamp down expectations for further fast gains in the currency.

The official Xinhua news agency said in a commentary that Chinese yuan-denominated assets are not a "bargaining chip" for gamblers, in the latest attempt to curb speculative bets on the currency.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3811 per dollar, 38 pips or 0.06per cent weaker than the previous fix of 6.3773.

In the spot market, onshore yuan opened at 6.3819 per dollar and was changing hands at 6.3850 at midday, 35 pips weaker than the previous late session close.

A host of Chinese policymakers have warned market participants recently against betting on one-sided moves in the currency, and the PBOC this week raised the reserve requirement ratio on foreign exchange deposits for the first time in 14 years.

"Market expectations were divided following rounds of official comments," said a trader at a Chinese bank.

The trader added that the market was wary of additional measures to rein in the yuan strength after the FX regulator announced on Wednesday that it had granted fresh quotas of roughly US$10 billion on Tuesday under an outbound investment scheme, allowing more capital outflows.

"Overall, pro-RMB bets should be further discouraged for now," strategists at OCBC Bank said in a note, adding markets should not rule out a pullback and possible test of the psychologically critical 6.4 per dollar level in coming sessions.

The yuan had breached 6.4 last week, taking it to three-year highs.

However, a Reuters poll showed on Thursday that bullish bets on the yuan have hit a near six-month high.

Several currency traders said they were awaiting a batch of U.S. economic data including job data due on Friday that could affect the trajectory of the Federal Reserve's policy stance. They said a change in the Fed's policy could bring volatility to the greenback and other major currencies.

By midday, the global dollar index rose to 89.947 from the previous close of 89.92, while the offshore yuan was trading at 6.3845 per dollar.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.3811 6.3773 -0.06per cent

Spot yuan 6.385 6.3815 -0.05per cent

Divergence from 0.06per cent

midpoint*

Spot change YTD 2.24per cent

Spot change since 2005 29.62per cent

revaluation

Key indexes:

Item Current Previous Change

Thomson 97.86 97.89 0.0

Reuters/HKEX

CNH index

Dollar index 89.947 89.92 0.0

*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 2per cent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan * 6.3845 0.01per cent

Offshore 6.536 -2.37per cent

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 Andrew Galbraith; Editing by Kim Coghill)