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Yuan weakens to 1-week low as market plays catch-up with firmer dollar

    SHANGHAI, May 6 (Reuters) - China's yuan eased to a one-week
low against the dollar on the first trading day after the long
Labor Day holiday, as investors played catch-up with broad
strength in the greenback in global markets.
    Domestic currency traders said the yuan continues to track
movements in the dollar, which hovered below a two-week high on
Thursday, consolidating ahead of a key U.S. jobs report that may
provide clues on when the Federal Reserve will dial back
monetary stimulus.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.4895 per dollar, 223 pips
or 0.34% weaker than the previous fix last Friday of 6.4672 and
the softest since April 27.
    In the spot market, onshore yuan opened at 6.4800
per dollar and eased to a low of 6.4846 at one point, the
weakest since April 28. By midday, spot yuan was changing hands
at 6.4797, 52 pips softer than the previous late session close. 
  
    Traders said while the yuan's broad trend remained largely
dependent on the global dollar index, sentiment was buoyed by a
strong rebound in tourism revenue during the long holiday,
suggesting consumption and economic recovery continued to gather
steam.
    Official data from the Ministry of Culture and Tourism
showed that domestic tourism revenue booked 113.2 billion yuan
($17.47 billion) during the five-day Labor Day holiday, up
138.1% from a year earlier, and had recovered to 77% of
pre-COVID levels. 
    "Consumption recovery will help fuel the growth momentum
ahead, and we see policy stability ahead of the CCP's (Chinese
Communist Party's) centenary celebration in July," Citi analysts
said in a note.
    Markets are also focused on Sino-U.S. relations.
    U.S. Trade Representative Katherine Tai said on Wednesday
she expects to engage "in the near term" with Chinese officials
to assess their implementation of the "Phase 1" trade deal
between the two countries, with the outcome to influence the
fate of Washington's punitive tariffs on Beijing.
    "That says, the first China-U.S. trade talks under Biden's
presidency could take place any time soon, with the issues on
the China's intellectual property protection and the purchases
of U.S. goods in focus," said Ken Cheung, chief Asian FX
strategist at Mizuho Bank in Hong Kong. 
    "While we do not look for a new China-U.S. trade war in the
near term, any escalation in China-U.S. tensions alongside
broader financial sanctions could keep the CNH and CNY on the
back foot."
    Separately, cash conditions in the interbank market loosened
at the start of the month, as investors shrugged off the PBOC's
biggest cash drain on a net basis since Feb. 22.
    Loose cash conditions usually weigh on the currency.
    The PBOC injected 10 billion yuan through reverse repos
earlier in the session. With 50 billion yuan of such loans
maturing, the central bank withdrew a net 40 billion yuan from
the financial system.
    By midday, the global dollar index stood at 91.338,
while the offshore yuan was trading -0.01 percent away
from the onshore spot at 6.4802 per dollar. 

    The yuan market at 0354 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4895   6.4672    -0.34%
                                       
 Spot yuan          6.4797   6.4745    -0.08%
                                       
 Divergence from    -0.15%             
 midpoint*                             
 Spot change YTD                       0.75%
 Spot change since 2005                27.73%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         97.1        96.96     0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    91.338      91.26     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    6.4802    -0.01%
        *                        
 Offshore              6.6577    -2.53%
 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.
. 

($1 = 6.4797 Chinese yuan)
    

 (Reporting by Winni Zhou and Andrew Galbraith; editing by
Richard Pullin)
  
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