Yuan edges higher, buoyed by China's recovering economy

Credit: REUTERS/THOMAS WHITE

The yuan edged higher on Tuesday, despite a weaker-than-expected official midpoint rate and the U.S. dollar's rebound in global markets, as some investors were encouraged by recent economic data showing China recovering from its virus-induced slump.

SHANGHAI, Sept 22 (Reuters) - The yuan edged higher on Tuesday, despite a weaker-than-expected official midpoint rate and the U.S. dollar's rebound in global markets, as some investors were encouraged by recent economic data showing China recovering from its virus-induced slump.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.7872 per dollar, 277 pips or 0.41% weaker than the previous fix of 6.7595.

But the official guidance came in weaker than market expectations, according to several traders and analysts.

"As the RMB sentiment has been turning bullish over past few months, the PBOC might start to withdraw the counter-cyclical factor to allow more two-way FX volatility to keep the RMB stable at its equilibrium level in the medium term," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

In the spot market, onshore yuan CNY=CFXS opened at 6.7960 per dollar and was changing hands at 6.7860 at midday, 184 pips firmer than the previous late session close.

"Our long RMB view remains in place, and we take heart from the USD/CNH finding little traction above 6.8000," Terence Wu, strategist at OCBC Bank, said in a note.

"Nevertheless, 6.7400/500 may now be a temporary floor before the October Golden Week. Beyond that, we continue to look for 6.7100 as a multi-week target."

Several onshore currency traders said the dollar's bounce in global markets overnight put some pressure on the yuan, but the currency remained underpinned by China's better-than-expected economic recovery.

In remarks at the weekend, President Xi Jinping said despite rising external risks, the economy was resilient and Beijing had ample policy tools.

"Sound economic fundamentals continued to support the yuan," said a trader at a Chinese bank, expecting the yuan to trade in a range of 6.75 to 6.8 per dollar in the near term.

Some market participants said the upcoming review by the global index provider FTSE Russell to include Chinese government bonds in its World Government Bond Index (WGBI) later this week would affect sentiment toward the yuan.

Meantime, a resurgent dollar =USD held on to overnight gains against other major currencies. FRX/

The global dollar index =USD traded at 93.526 at midday, when the offshore yuan CNH=D3 was changing hands at 6.788 per dollar.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.7872

6.7595

-0.41%

Spot yuan CNY=CFXS

6.786

6.8044

0.27%

Divergence from midpoint*

-0.02%

Spot change YTD

2.61%

Spot change since 2005 revaluation

21.96%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

93.85

93.78

0.1

Dollar index

93.526

93.574

-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 CNH= *

6.788

-0.03%

Offshore non-deliverable forwards CNY1YNDFOR= **

6.946

-2.29%

*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 Winni Zhou and Andrew Galbraith)

((winni.zhou@thomsonreuters.com; +86 21 2083 0100; Reuters Messaging: winni.zhou.thomsonreuters.com@reuters.net))

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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