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Chinese yuan weakens as market watches weekend trade talks

 


    SHANGHAI, Aug 12 (Reuters) - China's yuan weakened on
Wednesday as the dollar firmed, but it remained confined to a
tight range as market players awaited the outcome of trade
discussions between senior U.S. and Chinese officials this
weekend. 
    Spot yuan opened at 6.9524 per dollar after the
People's Bank of China set the fixing for the currency's daily
trading band at 6.9597 per dollar, firmer than the
previous fix of 6.9711. 
    By midday, the unit was changing hands at 6.9525 per dollar,
62 pips weaker than Tuesday's late session close, while the
global dollar index, which measures the greenback against
global peers, rose to 93.853 from the previous close of 93.691.
    Top trade envoys from Beijing and Washington are set to meet
over videolink on Aug. 15 for a high-level review of the Phase 1
trade deal between their countries.
    The talks will take place amid rising tensions between the
United States and China. 
    On Tuesday, U.S. President Donald Trump said that his
relationship with Chinese President Xi Jinping had soured due to
the COVID-19 pandemic, though a top White House economic adviser
said that the trade deal remains in "fine" shape.

    "The news flow has been pretty stable this week. It's
possible that the two sides want to have a good atmosphere for
the trade review this weekend, there probably won't be major
issues," said a trader at a foreign bank.
    He expected the yuan to track fluctuations in the U.S.
dollar index in the near term. Smooth trade talks between
Washington and Beijing could boost the currency, but any moves
would likely be limited, he said.
    The offshore yuan weakened 70 pips to 6.9495 per
dollar.
    Some market watchers continue to see upside for the yuan.
Analysts at China Construction Bank said in note that U.S.
federal fund futures pointed to extremely low U.S. rates
extending into next year, while China's economic recovery has
left room for the PBOC to adopt more flexible monetary policy.
    "In the near term, the renminbi's spread advantage will
continue," they said.
    On Wednesday, the spread of Chinese 10-year treasury bonds
over their U.S. equivalents was at 232 basis points, about 25
basis points off record highs touched in July.

    
    The yuan market at 4:09AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9597   6.9711    0.16%
                                       
 Spot yuan          6.9525   6.9463    -0.09%
                                       
 Divergence from    -0.10%             
 midpoint*                             
 Spot change YTD                       0.15%
 Spot change since 2005                19.04%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         92.16       92.01     0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.853      93.691    0.2
 
    
    
*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    6.9495    0.04%
        *                        
 Offshore              7.1002    -1.98%
 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 Andrew Galbraith and Xiao Han; Editing by Kim
Coghill)
  

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