China’s yuan hovers at 3-week high ahead of Biden-Xi meeting

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    SHANGHAI, Nov 15 (Businesshala) - China's yuan hovered at a
three-week high against the dollar on Monday on rising hopes for
an improvement in Sino-U.S. relations, while sightly
better-than-expected October activity indicators also lent
support to the local currency.
    Traders said the main focus would be a virtual meeting
between U.S. President Joe Biden and his counterpart Xi Jinping
on Tuesday, with some investors raising their bets for partial
removal of tariffs.
    "If Sino-U.S. relations improve further, the yuan will
continue strengthening," said Li Liuyang, chief currency analyst
at China Merchants Bank, though he added that 6.35 per dollar
could provide strong resistance for the yuan in the near-term.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.3896 per dollar, 169 pips
or 0.26% firmer than the previous fix of 6.4065, the strongest
since Oct. 27. 
    The firmer official guidance pushed the yuan's value against
it major trading partners to 101.33, the highest
level since Dec. 18, 2015, according to Businesshala calculations
based on official data.
    Until this year a reading of 98 on the trade-weighted CFETS
yuan basket index was "about the maximum we thought the
government would tolerate" said Arthur Kroeber, head of research
at Gavekal, speaking at a briefing in Shanghai.
    "(But) exports are very strong and capital inflows seem to
be decent ... so we're not looking at a situation where there's
massive depreciation."
    In the spot market, the onshore yuan opened at
6.3798 per dollar and was changing hands at 6.3821 at midday,
not far from a high of 6.3782 hit on Oct. 25.
    Relations between Beijing and Washington have been one of
the key factors influencing the yuan over the past few years,
analysts and traders said.
    The U.S.-China trade talks, along with optimism about a
pause in China's regulatory clampdown and a potential pick-up of
bond inflows could support the yuan in the near term, HSBC said.
    "However, assuming that there will not be a dramatic shift
in U.S.-China relations, we doubt that USD/RMB and the DXY index
can keep diverging from each other," analysts at the U.S.
investment bank said in a note, adding that the yuan already
appeared to be slightly overvalued.
    "We believe China has been subtly leaning against the RMB's
outperformance, via the fixings for instance," they added,
expecting the yuan to trade at 6.4 at end-2021.
    On the macroeconomic data front, China's industrial output
grew at a surprisingly faster pace in October, despite fresh
curbs to control COVID-19 outbreaks and supply shortages that
have threatened to undercut the recovery in the world's
second-largest economy.
    "Even as supply side pressures should continue to ease, we
expect year-on-year growth in industry and the wider economy to
slow further in Q4 and early 2022 amid the real estate slowdown
and impact of the current wave of COVID outbreaks," said Louis
Kuijs, head of Asia economics at Oxford Economics.
    "In response, we expect policymakers to take more easing
measures to prevent growth from falling too much; the impact
should largely kick in early next year."
    By midday, the broad dollar index stood at 95.012,
while the offshore yuan was trading at 6.378 per
dollar. 

    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.3896   6.4065    0.26%
                                       
 Spot yuan          6.3821   6.3785    -0.06%
                                       
 Divergence from    -0.12%             
 midpoint*                             
 Spot change YTD                       2.29%
 Spot change since 2005                29.68%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         101.27      101.19    0.1
 Businesshala/HKEX                          
 CNH index                             
 Dollar index    95.012      95.133    -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    6.378     0.06%
        *                        
 Offshore              6.5487    -2.43%
 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
Richard Pullin)
  
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