HONG KONG, Aug 26 (Reuters) - The yuan firmed on Wednesday as it capitalised on the tailwind of an apparent easing in Sino-U.S. trade tensions after the two sides reaffirmed their commitment to their Phase 1 agreement, sending the currency marching towards a seven-month high.
The onshore yuan CNY=CFXS climbed 0.1% to 6.9041 per dollar by midday while the offshore yuan was 0.06% stronger at 6.8994. The Chinese currency sat a whisker away from topping the January high it reached last week, largely thanks to broad dollar weakness and U.S. economic woes.
The latest rally is being supported by easing trade tensions between Beijing and Washington, said Bruce Yam, forex strategist at brokerage Everbright Sun Hung Kai.
Top U.S. and Chinese trade officials reaffirmed their commitment to the Phase 1 deal this week, which has seen China lagging on its obligations to buy American goods.
The two sides have exchanged barbs and sanctions over the COVID-19, human rights and technology in recent months.
Traders in Shanghai said they largely expect yuan strength to continue with the dollar still facing broad pressure, not least from largely soft data and ahead of a key speech by Federal Reserve Chairman Jerome Powell at Jackson Hole on Thursday, which some expect could take a more dovish slant. FRX/
The global dollar index =USD was a touch up by 0.1% to 93.106 in Asia morning trade.
The yuan, however, is not without its own risks.
A reversal in Sino-U.S. relations remains on the cards ahead of the November U.S. presidential election, a potential headwind for the Chinese currency, analysts at China Construction Bank (Asia) said in a note.
The People's Bank of China set the midpoint rate CNY=PBOC at 6.9079 per dollar prior to market open, strongest since January but not far from the Reuters estimate of 6.9086.
The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood 0.13% higher at 92.62.
The yuan market at 0401 GMT:
PBOC midpoint CNY=SAEC
Spot yuan CNY=CFXS
Divergence from midpoint*
Spot change YTD
Spot change since 2005 revaluation
Thomson Reuters/HKEX CNH index
*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
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