SHANGHAI, Oct 27 (Reuters) - China's yuan firmed on Tuesday, but traded in a narrow range as market participants tread cautiously ahead of the U.S. election.
Traders said the U.S. election result is seen as a key risk factor for the Chinese currency.
A win by Democratic candidate Joe Biden would support the yuan, said a Shanghai-based trader at a foreign bank, although he planned to lower exposure ahead of the election result given the high uncertainty.
With eight days to go until the U.S. election, President Donald Trump addressed boisterous rallies in Pennsylvania on Monday, while Biden made a low-key appearance in the state considered crucial to the chances of victory for both men.
Prior to the market open, the People's Bank of China set the midpoint rate CNY=PBOC at 6.6989 per dollar, the weakest since Oct. 19, and 264 pips softer than the previous fix of 6.6725.
The spot market CNY=CFXS opened at 6.7040 per dollar and was changing hands at 6.7035 at midday, 83 pips firmer than the previous late session close.
"Nothing is certain about the U.S. election. There might be a third possibility (besides a Trump or Biden win) that the election (result) is delayed," said Xing Zhaopeng, markets economist at ANZ in Shanghai.
The USD/CNY could rise in the short-term as investors seek shelter in the greenback, although the room for a more sustained yuan correction is limited given China's firm economic fundamentals, the Shanghai trader said.
Profits at China's industrial firms rose for a fifth straight month in September, but at a slower pace as factory-gate deflation and rising raw materials costs undercut a recovery in the manufacturing sector.
The dollar clung to small gains on Tuesday as the greenback's safe-haven appeal was burnished by worries about a second wave of COVID-19, which drove the steepest stock market selloff in a month and underpinned a bond rally.
The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.74, weaker than the previous day's 94.86.
The global dollar index =USD fell to 92.975 from the previous close of 93.074.
The offshore yuan CNH=D3 was trading at 6.6961 per dollar by midday.
Offshore one-year non-deliverable forwards contracts (NDFs)CNY1YNDFOR=, considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.8568, -2.30 percent away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 3:57AM 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