China's yuan weakens as stock market extends decline

[August 25, 2015]  SHANGHAI， (Reuters) - China's yuan dipped against the dollar on Tuesday after closing at its weakest level since 2011 on Monday, hit by another slump in the mainland's stock market and a weak central bank midpoint.

Traders said they believed the yuan's current range between 6.29 and 6.43 to the dollar was well accepted by the market after the currency's recent volatility once threatened a sharper depreciation.

"The yuan is unlikely to depreciate to 6.50," said a trader at a foreign bank in Shanghai, adding that the central bank was likely to intervene to slow down the depreciation.

China's major stock indexes slumped more than 6 percent to 8-month lows in early trade on Tuesday before paring some losses by midday, continuing a recent rout.

The People's Bank of China (PBOC) set the midpoint rate at 6.3987 per dollar prior to market open, 0.2 percent weaker than the previous fix of 6.3862.

The spot market opened at 6.4149 per dollar and was changing hands at 6.4109 at midday, 0.1 percent weaker than the previous close.

Offshore yuan  was trading 0.92 percent weaker than the onshore spot at 6.4705 per dollar by midday.

"The stock market crash provoked concerns about China's slack economy," said a trader at an Asian bank in Hong Kong.

Offshore one-year non-deliverable forwards contracts, considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.6975, 4.46 percent weaker than the midpoint.

The yuan market at a glance:

ONSHORE:

Item Current Previous Change

PBOC midpoint 6.3987 6.3862 -0.20%

Spot yuan 6.4109 6.4044 -0.10%

Divergence from 0.19%

midpoint*

Spot change ytd -3.23%

Spot change since 2005 29.10%

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 6.4705 -0.92%


Offshore 6.6975 -4.46%

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.

GRAPHICS:

The yuan in trade-weighted terms http://link.reuters.com/sed74t

The spot market versus the trading band http://reut.rs/1MhsqOi

(Reporting by Shanghai Newsroom; Editing by Jacqueline Wong)

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