SHANGHAI, July 5 (Reuters) - China's yuan weakened on Wednesday after a private survey showed services activity expanded at the slowest pace in five months in June, while speculation about government bond supply also kept a lid on yields.
The Caixin/S&P Global services purchasing managers' index (PMI) expanded at the slowest pace in five months in June as demand for in-person services weakened.
Prior to the market's opening, the People's Bank of China set the midpoint rate CNY=PBOC at 7.1968 per U.S. dollar, 78 pips firmer than the previous fix 7.2046.
The spot yuan CNY=CFXS opened at 7.2120 per dollar and was changing hands at 7.2320 at midday, 150 pips weaker than the previous late session close.
The offshore and onshore yuan fell back to 7.24 and 7.23 level against the dollar, respectively, as the Caixin China PMI Services grew less than expected, said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
Rate differentials aside, China's disappointing recovery and U.S.-China tensions would be keeping pressure on the yuan, said Philip Wee, senior FX strategist at DBS.
Meanwhile, bond yields and the interest rate swap curve edged lower after news that a think tank said China should ramp up government bond supply, UBS analysts wrote in a note.
"China rates are under downward pressure, as Tuesday's futures led selloff driven by fresh chatter of special bond issuance is unwound," said Citi analysts, adding the teams at Citi remain cautious as they wait for more pro-growth measures.
By midday, the global dollar index .DXY rose to 103.125 from the previous close of 103.039.
The one-year forward value for the offshore yuan CNH1YOR= traded at 7.0229 per dollar, indicating a roughly 3.11% appreciation within 12 months.
The yuan market at 0315 GMT:
PBOC midpoint CNY=SAEC
Spot yuan CNY=CFXS
Divergence from midpoint*
Spot change YTD
Spot change since 2005 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% from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
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