China’s yuan firms, set for eighth week of gains

China’s yuan firms, set for eighth week of gains

SHANGHAI, Sept 18 (Reuters)China’s yuan firmed on Friday, resuming its march higher against the dollar and putting it on course for an eighth straight week of gains after weak U.S. data pulled the greenback lower.

As of midday Friday, the yuan was up more than 1.3% for the week, set for its strongest weekly gain against the dollar since January 2019 and its longest weekly winning streak against the greenback since early 2018.

Friday’s rise came after the People’s Bank of China (PBOC) set its midpoint for the yuan’s daily trading band CNY=PBOC at 6.7591 per dollar, its firmest level since May 6, 2019.

Spot yuan CNY=CFXS opened at 6.7530 per dollar and was changing hands at 6.7560 at midday, 82 pips stronger than Thursday’s late session close.

The offshore yuan CNH=D3 firmed to 6.752 per dollar by midday.

While the yuan may consolidate gains after its rapid run-up and a volatile dollar could moderate short-term yuan rises, there are few factors supporting being short yuan, with China’s economic recovery and yield premiums continuing to attract inflows and supporting the yuan, traders said.

“Although exchange rate flexibility has risen in the past two years, the yuan is still prone to one-sided expectations. When a trend starts it doesn’t turn around quickly,” said a trader at a foreign bank.

“Fundamentals and the yield gap all support yuan appreciation. These haven’t changed, and the dollar is again relatively weak.”

Li Liuyang, chief FX analyst at China Merchants Bank, said the yuan had appreciated too quickly and could reverse, but in the mid-to-long term there was room for the yuan to rise more if the dollar continued to fall.

A commentary in financial paper The 21st Century Business Herald on Friday urged vigilance as the yuan appreciates.

“The basis for yuan appreciation may be a temporary phenomenon, but if this develops into an expectation and it continues to appreciate, it could have some impact on China’s long-term development,” it said.

The U.S. Federal Reserve’s commitment to maintaining a long-term near-zero interest rate had created opportunities for short-term arbitrage speculators, the commentary said.

“It is difficult to determine whether the U.S. is intentionally seeking a strategic devaluation, but the Fed’s policies do have an impact on China’s financial markets, and China should be wary of short-term arbitrage inflows.”

The yuan market at 4:07 AM GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.7591

6.7675

0.12%

Spot yuan CNY=CFXS

6.756

6.7642

0.12%

Divergence from midpoint*

-0.05%

Spot change YTD

3.07%

Spot change since 2005 revaluation

22.51%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

94.01

94.08

-0.1

Dollar index

92.924

92.898

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 CNH= *

6.752

0.06%

Offshore non-deliverable forwards CNY1YNDFOR= **

6.8992

-2.03%

*Premium for offshore spot over onshore CNY=CFXS

**Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC.

(Reporting by Andrew Galbraith and Jindong Zhang; editing by Richard Pullin)

(([email protected]; +86 21 2083 0079; Reuters Messaging: [email protected] ; Twitter: https://twitter.com/apgalbraith))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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