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Yuan off 27-month high on talk Beijing getting uneasy over recent surge

    SHANGHAI, Oct 22 (Reuters) - The Chinese yuan retreated from
a 27-month high on Thursday as a weaker-than-expected official
fixing and the approval of fresh outbound investment quotas
suggested authorities have become increasingly wary over the
recent rapid gains in the currency.
    The onshore yuan has rallied more than 6% on the
dollar since late May, stoking market speculation that Beijing
would roll out policy measures soon to tamp down the surge as a
too-strong currency could hurt Chinese exporters.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.6556 per dollar, 225 pips,
or 0.34%, firmer than the previous fix of 6.6781, and marked the
strongest guidance rate since July 11, 2018.
    It was still slightly weaker than market projections,
according to several currency traders.
    "To tame the CNH beast, the PBOC could pull reigns by
removing the fixing model's counter-cyclical factor, among
several other non-aggressive intervention tools they have at
hand like injecting more liquidity into the system," Stephen
Innes, chief global market strategist at Axi, said in a note.
    In the spot market, the onshore yuan opened at
6.6510 per dollar and was changing hands at 6.6669 at midday,
167 pips weaker than the previous late session close.
    A trader at a Chinese bank said a rebound in the dollar
 overnight has piled some pressure on the yuan, while some
investors had already become cautious after the recent sharp
rises in the local currency.
    Separately, state news agency Xinhua said on late Wednesday
that China was planning to issue fresh quotas worth $10 billion
in several batches under the outbound Qualified Domestic
Institutional Investor (QDII) scheme.
    Some analysts said approving fresh quotas under the QDII
scheme could foster more capital outflow and inject liquidity to
offshore market. Such outflows could weaken the Chinese
currency.
    "The central bank has many tools to slow down the pace of
yuan appreciation," said Ken Cheung, chief Asian FX strategist
at Mizuho Bank in Hong Kong.
    The outbound quota plan drove the one-year dollar/yuan
forwards in the offshore market down to a near two-week
low on Thursday.
    The offshore yuan traded at 6.6593 per dollar by
midday. 
    
    The yuan market at 0407 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.6556   6.6781    0.34%
                                       
 Spot yuan          6.6669   6.6502    -0.25%
                                       
 Divergence from    0.17%              
 midpoint*                             
 Spot change YTD                       4.44%
 Spot change since 2005                24.14%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.36       95.59     -0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.794      92.727    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    6.6593    0.11%
        *                        
 Offshore              6.8271    -2.51%
 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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