Yuan nears 7-month high, on track for 5th week of gains

Credit: REUTERS/Thomas White

The yuan strengthened to a near seven-month high on Friday, after the U.S. Federal Reserve's announced an aggressive new strategy to lift employment and increased tolerance for higher inflation, and was on track for its fifth weekly gain.

SHANGHAI, Aug 28 (Reuters) - The yuan strengthened to a near seven-month high on Friday, after the U.S. Federal Reserve's announced an aggressive new strategy to lift employment and increased tolerance for higher inflation, and was on track for its fifth weekly gain.

The Federal Reserve on Thursday rolled out a sweeping rewrite of its approach to its dual role of achieving maximum employment and stable prices, putting new weight on bolstering the U.S. labour market and less on worries about too-high inflation.

The dollar held gains against major currencies on Friday after the Fed's inflation shift.

But the outlook for the greenback remains weak, which could bode well for yuan's stability or appreciation, analysts at Chinese investment bank CICC said in a note.

Prior to the market opening, the People's Bank of China set the midpoint CNY=PBOC at 6.8891 per dollar, firmer than the previous fix of 6.8903.

The onshore yuan CNY=CFXS opened at 6.8855 per dollar and rose to 6.8759 at one point, within a whisker of a seven-month high of 6.8744 hit the previous session. By midday, it was changing hands at 6.8778 at midday, 168 pips firmer than the previous late session close.

If the yuan finishes the late night session at the midday level, it would have gained 0.55% to the dollar for the week, its fifth weekly gain in a row.

A stronger yuan is better for China as it ramps up its purchases of U.S. goods under the countries' Phase 1 trade deal, said Shen Xinfeng, chief macroanalyst at Northeast Securities.

Top U.S. and Chinese trade officials this week reaffirmed their commitment to the agreement, which has seen China lagging on its obligations to buy American goods.

Shen said the yuan also is benefiting from China's economic recovery.

Profits at China's industrial firms grew for a third straight month in July and at the fastest pace since June 2018, marking a bright spot in the economy as the manufacturing sector recovers from the coronavirus slump.

There was muted reaction to the latest headlines on Sino-U.S. military tensions.

The United States and China traded jibes as tensions grow between the world's two largest economies, with the U.S. defence chief vowing not to "cede an inch" in the Pacific and China saying Washington was risking soldiers' lives.

The offshore yuan CNH=D3 was trading 0.08 percent away from the onshore spot at 6.8722 per dollar.

The yuan market at 4:19AM GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.8891

6.8903

0.02%

Spot yuan CNY=CFXS

6.8766

6.8946

0.26%

Divergence from midpoint*

-0.18%

Spot change YTD

1.26%

Spot change since 2005 revaluation

20.36%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

92.82

92.8

0.0

Dollar index

92.808

93.022

-0.2

*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= *

6.8723

0.06%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.0201

-1.87%

*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 Luoyan Liu and Andrew Galbraith; Editing by Kim Coghill)

((luoyan.liu@thomsonreuters.com; Reuters Messaging: luoyan.liu.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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