Yuan extends losses after worst month since August 2019

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    SHANGHAI, July 1 (Reuters) - China's yuan extended losses
against the dollar on Thursday, after posting its biggest
monthly drop since August 2019, dragged lower by broad strength
in the greenback in global markets.
    But trading was tepid as temporary closures of some major
state-run banks in Beijing for the 100th anniversary
celebrations of the Chinese Communist Party on July 1 had
thinned volumes and liquidity, traders said. 
    Domestic financial markets are usually stable during key
economic and political events.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at a near one-week low
of 6.4709 per dollar, 108 pips or 0.17% weaker than the previous
fix of 6.4601. 
    In the spot market, onshore yuan opened at 6.4620
per dollar and was changing hands at 6.4640 at midday, 62 pips
weaker than the previous late session close.
    Traders said the weakness in the yuan was tracking broad
dollar strength overnight, with many investors now anxiously
awaiting a key U.S. job report due on Friday for clues on when
the U.S. Federal Reserve will start to pare back stimulus.

    A yuan trader at a Chinese bank said markets continued to
bet that further strength in the dollar will pile additional
downward pressure on the yuan, with many eyeing 6.5 per dollar
as the next key level.
    Meanwhile, despite increasing expectations for a Fed taper
and interest rate hikes in the United States, many analysts
believe Chinese central bank will stay put for the next two
years despite a slew of recent economic indicators showing an
uneven recovery in the world's second-largest economy.
    "Given (recent) Chinese yuan strength, supported by a
sizeable trade surplus, FDI and portfolio inflows, we believe
the PBOC may wait even longer this time before responding to the
Fed rate hikes," economists at Standard Chartered said in a
note. 
    The yuan had rallied to three-year highs against a weakening
dollar in spring, but retreated 1.3% in June after the Fed
surprised markets by signaling rate rises may happen sooner than
expected.
    The yuan is still strong against a basket of currencies of
China's trading partners. The CFETS basket index
breached the 98 level again and rose to 98.01 on Thursday.
Markets widely believe authorities want to see 98 as the ceiling
for the index. 
​    A private survey on Thursday showed that China's factory
activity expanded at a softer pace in June, as the resurgence of
COVID-19 cases in the export province of Guangdong and supply
chain woes drove output growth to the lowest in 15 months.

    By midday, the global dollar index rose to 92.394
from the previous close of 92.367, while the offshore yuan
 was trading at 6.4688 per dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4709   6.4601    -0.17%
                                       
 Spot yuan          6.464    6.4578    -0.10%
                                       
 Divergence from    -0.11%             
 midpoint*                             
 Spot change YTD                       0.99%
 Spot change since 2005                28.04%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         98.07       97.9      0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.394      92.367    0.0
 
    
    
*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    6.4688    -0.07%
        *                        
 Offshore              6.6384    -2.52%
 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 Kim
Coghill)
  

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