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Yuan inches up, set for third straight monthly gain

Credit: REUTERS/THOMAS WHITE

China's yuan inched up against the dollar in thin trade on Friday, as optimism towards a preliminary Sino-U.S. trade agreement continued to support investor sentiment, which pushed the local unit on course for its third straight monthly gain.

SHANGHAI, Nov 29 (Reuters) - China's yuan inched up against the dollar in thin trade on Friday, as optimism towards a preliminary Sino-U.S. trade agreement continued to support investor sentiment, which pushed the local unit on course for its third straight monthly gain.

Traders said market was largely unfazed by U.S. President Donald Trump's decision to sign into law congressional bills that back protesters in Hong Kong as the approval was expected, and they were awaiting China's retaliation before gauging the potential impact on the currency and the trade deal between the two nations.

"While investors may continue to be on the lookout for any retaliatory measures out of China following the HK bill, we note that the bill is likely only a piece in the larger Sino-U.S. trade jigsaw," analysts at OCBC Bank said in a note.

Prior to the market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.0298 per dollar, 27 pips weaker than the previous fix of 7.0271.

In the spot market, the onshore yuan CNY=CFXS opened at 7.0325 per dollar and was changing hands at 7.0320 at midday, 28 pips firmer than the previous late session close.

If it holds its ground in the late night session, it will have gained 0.12% against the dollar for the month, marking a third straight monthly gain, but it remains 2.3% weaker in the year-to-date.

Trading was quiet on Friday morning as the Thanksgiving holiday thiined out both global and local markets.

Iris Pang, Greater China economist at ING, said uncertainty over the trade war was the key driver of the yuan market this year and will continue to play a key in 2020.

"High CNY volatility will continue even if there is a phase one deal because the market will then start to question the likelihood of phase two or three deals," she said, noting that uncertainties stemming from the U.S. presidential election would be added to the mix.

Pang expects the yuan to finish this year at 7.00 per dollar.

Some signs of liquidity tension also lent support to the yuan as traders were scrambling for cash to square their books and meet administrative requirements on Friday, the last trading day of the month.

Such demand for the yuan pushed the overnight tenor of dollar/yuan swaps CNYON= to the highest level since Sept.30.

The global dollar index .DXY fell to 98.328 at midday from the previous close of 98.37.

The offshore yuan CNH=D3 was trading at 7.0318 per dollar as of midday.

The yuan market at 0342 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

7.0298

7.0271

-0.04%

Spot yuan CNY=CFXS

7.032

7.0348

0.04%

Divergence from midpoint*

0.03%

Spot change YTD

-2.26%

Spot change since 2005 revaluation

17.70%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

92.34

92.37

0.0

Dollar index

98.328

98.37

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 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument

Current

Difference from onshore

Offshore spot yuan CNH= *

7.0318

0.00%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.1

-0.99%

*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 John Ruwitch; Editing by Simon Cameron-Moore)

((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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