Yuan set for best week since November, regulators report concerns over one-way betting

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    SHANGHAI, May 28 (Reuters) - China's yuan extended gains
against the dollar on Friday and looked set for its best weekly
performance since November, but the pace of the rally slowed
after regulators signaled some concerns over strong one-way bets
on the currency.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.3858 per dollar,
firmer than the previous fix of 6.403. 
    Friday's official guidance rate was the strongest since May
2018 and set above the psychologically important 6.4 per dollar
level. Traders and analysts saw the move as a nod from the
authorities that they would allow spot yuan to trade between the
6.3 and 6.4 levels for the time being.
   In the spot market, onshore yuan opened at 6.3839
per dollar and was changing hands at 6.3705 at midday, 135 pips
firmer than the previous late session close and putting it on
track for a sixth straight day of gains.
    "The imminent RMB appreciation risk may drive more RMB
buying flow and push the USD/RMB lower in the near term, while
the downside of USD/RMB will be supported by the dividend flow
offered by Chinese corporate and the potential USD rebound due
to the Fed's hawkish shift," Ken Cheung, chief Asian FX
strategist at Mizuho Bank in Hong Kong, said in a note. 
    Traders said most investors still expect further strength in
the yuan, but its rally slowed in morning trade after regulators
warned against "one-way expectations" on the exchange rate.
    Chinese regulators said late on Thursday that they will
crack down on manipulation of the forex market while reiterating
no change to the country's currency policy. The remarks were the
second time in five days that officials commented on currency
policy.
    "The central bank is committed to a flexible exchange rate
and hence will not draw a line in the sand in both directions,"
said Wang Ju, senior FX strategist at HSBC in Hong Kong.
    "It aims for less exchange rate control over time, as the
capital account liberalises further, but there is still a
'basically stable' policy target under the current set-up," she
added, expecting more two-way volatility in the yuan this year.
    Alvin Tan, Asia FX strategist at Royal Bank of Canada in
Hong Kong, said Beijing may be "expected to continue leaning
against yuan strength", with such an investor outlook seen in a
rebound in options market.
    The global dollar index rose to 90.066 at midday from
the previous close of 90.012, while the offshore yuan
was trading at 6.364 per dollar. 

    The yuan market at 0402 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.3858   6.403     0.27%
                                       
 Spot yuan          6.3705   6.384     0.21%
                                       
 Divergence from    -0.24%             
 midpoint*                             
 Spot change YTD                       2.48%
 Spot change since 2005                29.92%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         98.22       98.11     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.066      90.012    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    6.364     0.10%
        *                        
 Offshore              6.5198    -2.06%
 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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