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Yuan edges up, market cautious ahead of annual meeting of parliament

    SHANGHAI, March 1 (Reuters) - China's yuan inched higher
against the dollar on Monday as  markets await policy cues on
the broader economy from this week's  annual gathering of the
National People's Congress, China's parliament.
    The annual meeting of parliament, which begins on March 5,
will see China announcing goals for 2021 as well as its next
five-year plan for economic development.
    Several currency traders said they expected the yuan to
trade in a thin range this week, largely maintaining stability
in asset moves as is the norm for domestic financial markets
during and before key economic and political events. 
    The onshore spot yuan opened at 6.4671 per dollar
and was changing hands at 6.4637 at midday, 44 pips firmer than
the previous late session close.
    The yuan rallied more than 10% on the dollar during an
eight-month winning streak since June that ended last month, as
analysts say extended yuan strength has prompted authorities to
roll out some measures to allow more capital outflows.
    The strong currency and improving economic fundamentals have
kept traders guessing on whether the NPC would signal a shift by
policymakers to tighten monetary conditions soon to rein in
financial risks amid still-high debt levels.
    "The central bank aims to adjust the pace of policy
normalization according to economic development and market
conditions, taking into account pandemic related uncertainty and
any credit market and rates volatility," Wang Tao, chief China
economist at UBS, said in a note.
    She said containing macro leverage and risk would be a
critical part of the government's plan to normalize policies. 
    On the data front, markets hardly budged to tepid 
manufacturing surveys. Both the official and private business
surveys released over the weekend and on Monday showed that
China's factory activity expanded at the slowest pace in nine
months in February.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.4754 per dollar, 41 pips
or 0.06% softer than the previous fix of 6.4713, and the weakest
since Jan. 28.
    The global dollar index traded at 90.813 by midday,
while the offshore yuan was trading at 6.4703 per
dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4754   6.4713    -0.06%
                                       
 Spot yuan          6.4637   6.4681    0.07%
                                       
 Divergence from    -0.18%             
 midpoint*                             
 Spot change YTD                       1.00%
 Spot change since 2005                28.05%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.64       96.26     0.4
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.813      90.768    0.1
 
    
    
*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    6.4703    -0.10%
        *                        
 Offshore              6.6385    -2.46%
 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.
. 
    

 (Reporting by Winni Zhou and Andrew Galbraith
Editing by Shri Navaratnam)
  
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