Yuan eases on dollar demand and concerns over capital outflows

    SHANGHAI, Feb 22 (Reuters) - The yuan eased on Monday,
pressured by seasonal corporate dollar demand and with sentiment
dented by China's potential plans to allow more capital
outflows.
    China will study the feasibility of allowing individuals to
invest in securities and insurance products abroad, Ye Haisheng,
the head of capital account management department at the State
Administration of Foreign Exchange (SAFE), wrote in a
state-owned publication published late on Friday. The amount
will be within an annual quota of $50,000 per person.

    Although the timeline for the plan is unclear, traders and
analysts said the move suggests the authorities have become
increasingly uncomfortable with the yuan's strength and growing
concerns about bubble risk in some domestic markets.
    In the spot market, onshore yuan opened at 6.4585
per dollar and was changing hands at 6.4625 at midday, 27 pips
weaker than the previous late session close, in spite of a
firmer midpoint fixing.
    The People's Bank of China (PBOC) set the midpoint
 at 6.4563 per dollar, 61 pips firmer than previously.
    Tommy Xie, head of Greater China research at OCBC Bank, said
in a note the USD/CNY remained elevated above 6.45 this morning
despite a retreat in the broadly stronger dollar.
    "We think this concern is likely to be short-lived and the
pressure for the pair to trend down remains unchanged."
    Several traders said corporate dollar demand had picked up
recently as manufacturing and business resumed after the
week-long Lunar New Year holiday. 
    A trader at a Chinese bank said the market was wary of the
global reflation trade against the backdrop of rising long-term
U.S. Treasury yields, which could be a headwind for the yuan.
    But its losses were capped by latest developments in
Sino-U.S. relations, after senior Chinese diplomat Wang Yi said
on Monday the United States and China could work together on
issues such as climate change and the coronavirus pandemic if
they repaired their damaged bilateral relationship.
    Meanwhile, there was little reaction to China keeping its
benchmark lending rate for corporate and household loans steady
for the 10th straight month at its February fixing on Saturday,
matching market expectations.  
    
    The yuan market at 0401 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4563   6.4624    0.09%
                                       
 Spot yuan          6.4625   6.4598    -0.04%
                                       
 Divergence from    0.10%              
 midpoint*                             
 Spot change YTD                       1.02%
 Spot change since 2005                28.07%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.16       96.36     -0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.338      90.291    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    6.4621    0.01%
        *                        
 Offshore              6.6254    -2.55%
 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
Jacqueline Wong)
  

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