China’s yuan nears 1-month high on hopes of improving Sino-U.S. ties

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    SHANGHAI, Oct 11 (Businesshala) - The yuan touched a near
one-month high against the dollar on Monday as weekend talks
between senior Chinese and U.S. officials raised hopes the two
sides may find ways to start ironing out a host of disputes.
    Currency traders said the market largely shrugged off broad
dollar strength over expectations for U.S. Federal Reserve's
stimulus tapering from next month, as investors focusing more on
recent developments in Sino-U.S. relations.
    China said on Saturday it pressed the United States to
eliminate tariffs in talks between the countries' top trade
officials that Washington saw as a test of bilateral engagement
between the world's biggest economies.
    Trade disputes between Beijing and Washington have been one
of the key factors influencing the Chinese currency over the
past few years.
    Rising expectations of a possible partial removal of U.S.
trade tariffs lent support to the yuan, said Tommy Xie, head of
Greater China research at OCBC Bank.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint at 6.4479 yuan per dollar,
125 pips, or 0.2%, stronger than the previous fix of 6.4604. It
was the firmest since Sept. 16.
    The strengthened official guidance rate pushed China's
trade-weighted yuan basket index to 100.09, the
highest since Feb. 3, 2016, and up 5.54% so far this year,
according to Businesshala' calculations based on official data.
    In the spot market, onshore yuan opened at 6.4420
per dollar and strengthened to a high of 6.4389, the strongest
level since Sept. 16. By midday, it was changing hands at
6.4376, 64 pips firmer than the previous late session close.
    A trader at a foreign bank said he expected the yuan
strength to continue in the short term, but added that "if the
trade surplus shrunk this month, or there would be no
substantial improvements in the Sino-U.S. relations, the yuan
could weaken."
    Meanwhile, tighter liquidity conditions in the onshore
interbank money market following the PBOC's move to withdraw
cash from the banking system also lent support to the yuan,
according to traders.
    The PBOC withdrew the most cash on a net basis in a year for
the week last week, and drained another 190 billion yuan via
open market operations on Monday, bringing total net cash
withdrawal to 510 billion yuan after the week-long holiday ended
on Oct. 7.
    The volume-weighted average rate of the benchmark overnight
repo traded in the interbank market, considered
one of the best indicators of general liquidity in China, rose
to 2.1316% on Monday morning, the highest since Sept. 22.
    By midday, the global dollar index traded at 94.144,
while the offshore yuan was trading at 6.441 per
dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4479   6.4604    0.19%
                                       
 Spot yuan          6.4376   6.444     0.10%
                                       
 Divergence from    -0.16%             
 midpoint*                             
 Spot change YTD                       1.41%
 Spot change since 2005                28.56%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         100.17      100.04    0.1
 Businesshala/HKEX                          
 CNH index                             
 Dollar index    94.144      94.164    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    6.441     -0.05%
        *                        
 Offshore              6.6262    -2.69%
 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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