Yuan off March high as U.S.-China risks overshadow stock inflows

HONG KONG, July 21 (Reuters) - The yuan was little changed on Tuesday, trimming an early advance to a four-month top as simmering tensions between Beijing and Washington undercut the boost from extended inflows into the mainland stock market.

The onshore yuan CNY=CFXS was steady from the previous close, fetching 6.9923 per dollar at midday. The offshore yuan CNH=D3 was also flat at 6.9890 per dollar.

The global dollar index =USD wasn't much stronger either, up just 0.04% at 95.779, as safe-haven flows into the U.S. currency tapered off after European Union leaders reached a deal to support their coronavirus-blighted economies, while hopes for a vaccine against the pandemic also buoyed the mood.

The yuan took advantage of the shaky dollar early in the day, hitting its highest level since mid-March in both onshore and offshore markets.

Capital flowing into China's bond and stock markets as well as the widening gap between interest rates China and the United States have been supportive of yuan strength, Goldman Sachs said in a report.

"The recent net FX inflows seem likely to continue, providing more support to the (Chinese) currency," said the bank's analysts.

Chinese stocks edged up, building on their 3% gains in the previous session. .SS

Overall, however, the U.S.-China tensions kept a leash on the yuan during the day, with some investors selling off into the early morning strength.

Traders in Shanghai said Sino-U.S. showdown over trade, technology and human rights, as well as seasonal demand from overseas-listed Chinese companies for foreign currencies to deliver dividend put the brakes on the yuan.

The U.S. Commerce Department on Monday added 11 Chinese companies implicated in what it called human rights violations in connection with China's treatment of its Uighurs in Xinjiang in western China to the U.S. economic blacklist.

Prior to the onshore open, the People's Bank of China set the midpoint rate CNY=PBOC at 6.9862, the strongest since March and a tad firmer than the Reuters estimate of 6.9912.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 92.55, weaker than the previous day's 92.71.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.9862

6.9928

0.09%

Spot yuan CNY=CFXS

6.9923

6.9915

-0.01%

Divergence from midpoint*

0.09%

Spot change YTD

-0.42%

Spot change since 2005 revaluation

18.37%

Key indexes:

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