Yuan eases as investors seek clues on central bank intentions

SHANGHAI, May 28 (Reuters) - China's yuan eased against the dollar on Tuesday, largely reflecting global gains in the greenback, although trading volumes were light as investors remained uncertain about the central bank's intentions on the currency's direction.

Prior to market opening on Tuesday, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.8973 per dollar, 49 pips or 0.07% weaker than the previous fix of 6.8924.

The spot market CNY=CFXS opened at 6.8980 per dollar and was changing hands at 6.9072 at midday, 98 pips weaker than the previous late session close and 0.14 percent softer than the midpoint.

The onshore spot yuan consolidated at the psychologically important 6.9 per dollar level on Tuesday, with trading volumes CNYSPTVOL=CFXT shrinking to $11.781 billion as of midday, down from a normal half-day volume of about $15 billion.

Traders said market participants lack conviction about the next direction of the Chinese currency, given the uncertainties around the global economy and policy intentions.

"It is hard to say - for the exchange rate, what the authorities have done so far is only a verbal warning to the market. Many tools are yet to be rolled out (to prevent yuan losses)," said a trader at a Chinese bank.

Senior officials have repeatedly warned against speculative shorting the Chinese currency over the past week and reiterated their objective to keep the yuan "basically stable".

At the same time, the local unit continued to face downside pressure from Sino-U.S. trade tensions given U.S. President Donald Trump's threat to slap tariffs of up to 25% on an additional list of Chinese imports worth about $300 billion.

And China is set to impose higher tariffs on a revised $60 billion list of U.S. goods to go into effect on June 1.

Several traders said they had closed out their yuan positions for proprietary trade and are staying sidelined.

Separately, some traders say the yuan could face some near-term pressure as Chinese companies listed offshore usually start making foreign exchange purchases for dividend payments starting in June. Such demand could pile pressure on the yuan.

Market participants will shift their attention to the broader performance of China's economy with a survey on manufacturing activity due later this week closely watched.

Analysts at China Construction Bank in Hong Kong expect the yuan to be driven by the Purchasing Managers' Index, due on Friday, and forecast both onshore and offshore yuan to trade in a range of 6.85 to 6.93 per dollar this week.

The global dollar index .DXY rose to 97.795 at midday from the previous close of 97.613.

The offshore yuan CNH=D3 was trading at 6.9201 per dollar as of midday.

The yuan market at 0401 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.8973

6.8924

-0.07%

Spot yuan CNY=CFXS

6.9072

6.8974

-0.14%

Divergence from midpoint*

0.14%

Spot change YTD

-0.50%

Spot change since 2005 revaluation

19.82%

Key indexes:

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.