Updates to domestic close
SHANGHAI, Oct 20 (Reuters) - The yuan ended its domestic trading session at a more than 27-month high against the dollar on Tuesday, after the central bank set its daily guidance rate on the stronger side of a key threshold.
The onshore spot yuan CNY=CFXS finished the domestic trading session at 6.6818 per dollar on Tuesday, its strongest such close since July 17, 2018.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at a fresh 18-month high of 6.693 per dollar, 80 pips firmer than the previous fix of 6.701.
The official guidance, set firmer than the key 6.7 per dollar level for the first time since April 2019, fuelled speculation whether the central bank would allow further strength in the yuan.
The PBOC cancelled foreign exchange forward reserve requirements earlier this month after the spot price rose past 6.7, with markets widely interpreting it as a sign that the authorities might start to feel uncomfortable with rapid rises in the Chinese currency.
"Having breached the key level of 6.70, the PBOC's FX policy has been gaining more market attention," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
"At this stage, the PBOC appears to reserve some FX policy tools before the U.S. elections, which could pose the RMB appreciation risk," he said, but adding he maintained a cautious view on adding long yuan positions for now.
Markets expect that a victory by Democrat Joe Biden will trigger more inflows into yuan assets.
Several currency traders said they received an increasing number of queries from their corporate clients to trim dollar positions to limit exchange losses, while the market will pay close attention to possible PBOC actions.
Separately, China kept its benchmark lending rate for corporate and household loans steady for the sixth straight month at its October fixing on Tuesday, encouraged by a robust recovery from the coronavirus shock.
Many economists and analysts expect the rates to stay unchanged through the rest of the year.
"We think the next move in the LPR will likely be an increase," Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note.
"But the PBOC will probably wait until early next year and room to push up rates will be limited by a strengthening renminbi and the withdrawal of fiscal support."
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong)
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