China’s yuan hits 6-yr high against peers, investors see greater PBOC tolerance

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    SHANGHAI, Nov 18 (Businesshala) - China's yuan hit a near
six-year high against major peers on Thursday, on investor views
that authorities are likely to tolerate a rise in the currency,
at least in the near-term.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.3803 per dollar, 132 pips
or 0.2% firmer than the previous fix of 6.3935, the strongest
since June 2.
    The firmer guidance pushed the yuan's trade-weighted basket
index to 101.88, the loftiest level since Dec. 9,
2015 and up 7.42% year-to-date, according to Businesshala calculation
based on official data.
    Currency traders believe the central bank is unlikely to be
too worried about this round of yuan strengthening.
    "Appreciation pressure remains huge, but authorities may not
be too worried," said a trader at a Chinese bank. "Some
appreciation is not going to hurt the broad economy much, as
long as the pace of rally is still under control and without
triggering strong rising expectations."
    In the spot market, the onshore yuan opened at
6.3770 per dollar and was changing hands at 6.3762 at midday, 20
pips firmer than the previous late session close.
    Some traders said dollar selling from corporate clients was
heavy on Thursday morning.
    Chinese companies traditionally have higher demand for the
yuan toward year-end for various payments, prompting heavier
dollar conversion into the local currency and driving the yuan
higher.
    Xie Yaxuan, chief macro analyst at China Merchants
Securities, said a stronger yuan was generally more positive for
China's economic growth and could help offset inflationary
pressure.
    "Against the backdrop of the positive impact from the yuan
appreciation, (I suggest) maintaining a cautiously optimistic
attitude towards the yuan rally," he said in a note.
    Xie, who previously worked for the PBOC and FX regulator's
Shenzhen branch, also suggested policymakers not try to verbally
guide the yuan before it rises past the psychologically critical
6 per dollar level in order to allow market forces to determine
near-term exchange rates.
    By midday, the broad dollar index fell to 95.753 from
the previous close of 95.814, while the offshore yuan
was trading at 6.3758 per dollar. 

    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.3803   6.3935    0.21%
                                       
 Spot yuan          6.3762   6.3782    0.03%
                                       
 Divergence from    -0.06%             
 midpoint*                             
 Spot change YTD                       2.39%
 Spot change since 2005                29.80%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         101.66      101.65    0.0
 Businesshala/HKEX                          
 CNH index                             
 Dollar index    95.753      95.814    -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    6.3758    0.01%
        *                        
 Offshore              6.5501    -2.59%
 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 Sam
Holmes)
  
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