Yuan hits near 5-month high as dollar languishes

Credit: REUTERS/© Kim Kyung Hoon / Reuters

The yuan hit a near five-month high against the dollar on Wednesday, on deepening greenback weakness and as a scheduled U.S.-China trade meeting gave some investors hope the world's two largest economies could resolve some of their grievances.

SHANGHAI, Aug 5 (Reuters) - The yuan hit a near five-month high against the dollar on Wednesday, on deepening greenback weakness and as a scheduled U.S.-China trade meeting gave some investors hope the world's two largest economies could resolve some of their grievances.

The dollar eased in the morning session, as Washington's latest coronavirus relief package got bogged down in Congress and investors braced for a bumpy ride to economic repair. FRX/

While the yuan's strength mainly reflected a softer dollar, several traders said the latest news on Sino-U.S. trade deal evaluation suggested both sides were still talking, despite worsening ties between the two. That helped support the local currency.

Sources told Reuters that senior U.S. and Chinese officials would review the implementation of their Phase 1 trade deal and likely air mutual grievances in an increasingly tense relationship during an Aug. 15 videoconference.

Onshore spot yuan CNY=CFXS opened at 6.9660 per dollar and rose to a high of 6.9559 at one point, the strongest level since March 11. By midday, it was changing hands at 6.9579, 169 pips firmer than the previous late session close.

Its offshore counterpart CNH=D3 also jumped to a near five-month high of 6.9577 per dollar before trading at 6.9588 per dollar at midday.

"Whether the outcome of the trade deal review is positive or negative on the yuan remains uncertain, and market has not shaped clear expectations yet," said a trader at a Chinese bank.

Traders and analysts said they would pay close attention to the meeting but held low expectations of any major progress.

"There is unlikely to be any breakthrough, with the commitment under Phase 1 deal still lagging," said Frances Cheung, head of Asia macro strategy at Westpac in Singapore, referring to overall purchase agreed by both countries in January.

Similarly, Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong, expects the trade agreement to stay largely as it was.

"It wouldn't do the United States any good to roll back the agreement as it is hard to negotiate a better deal," he said, adding the U.S. economy was unable to bear additional tariff in light of business disruption brought by coronavirus shock.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.9752 per dollar, 51 pips or 0.07% firmer than the previous fix of 6.9803.

The global dollar index =USD fell to 93.115 at midday from the previous close of 93.151.

The yuan market at 0313 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.9752

6.9803

0.07%

Spot yuan CNY=CFXS

6.9579

6.9748

0.24%

Divergence from midpoint*

-0.25%

Spot change YTD

0.08%

Spot change since 2005 revaluation

18.95%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

91.71

91.57

0.2

Dollar index

93.115

93.151

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= *

6.9588

-0.01%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.1148

-1.96%

*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; Editing by Sam Holmes)

((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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