Yuan set for best day in 2 weeks, but gains capped by Sino-U.S. friction

Credit: REUTERS/© Kim Kyung Hoon / Reuters

The yuan jumped the most in almost two weeks on Monday, capitalising on a battered U.S. dollar, but the advance was checked by Sino-U.S. tensions which escalated with the abrupt closures of consulates last week.

HONG KONG, July 27 (Reuters) - The yuan jumped the most in almost two weeks on Monday, capitalising on a battered U.S. dollar, but the advance was checked by Sino-U.S. tensions which escalated with the abrupt closures of consulates last week.

The onshore yuan CNY=CFXS firmed 0.24% to trade at 7.0005 per dollar just after midday, set for its strongest session since July 15. The offshore yuan CNH=D3 also managed gains of 0.17%, to stand at 7.0025 per dollar, its best in a week.

The Chinese currency was on a strong footing against the global dollar index =USD, which fell more than 0.4% to 93.966, and hitting its lowest since late 2018 during Asia trading.

The greenback is under renewed pressure as U.S.-China ties worsen and also because of a resurgence in coronavirus cases in the United States which risks spoiling the country's economic recovery. FRX/

"The renminbi's move today has more to do with the wider global environment," said Carie Li, economist at OCBC Wing Hang Bank in Hong Kong, referring to the yuan's other name.

But while the yuan scaled gains against the dollar, frictions between Beijing and Washington pushed the yuan lower against other peers, said a yuan trader in the onshore market.

Tensions ramped up after the United States ordered the closure of the Chinese consulate in Houston last week. China took over the U.S. consulate premises in Chengdu on Monday morning, as tit-for-tat retaliation.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, slid to 91.55, from the previous close of 91.64.

"In the near term, the U.S.-China headlines will still create pressure for the renminbi, especially before the November U.S. presidential election," said Li.

The People's Bank of China set the midpoint rate CNY=PBOC at 7.0029 per dollar prior to market open, weaker than the Reuters estimate of 6.9939.

The yuan market at 0411 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

7.0029

6.9938

-0.13%

Spot yuan CNY=CFXS

7.0005

7.017

0.24%

Divergence from midpoint*

-0.03%

Spot change YTD

-0.53%

Spot change since 2005 revaluation

18.23%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

91.55

91.64

-0.1

Dollar index

93.966

94.361

-0.4

*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= *

7.0025

-0.03%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.1431

-1.96%

*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 Noah Sin; Editing by Jacqueline Wong)

((Noah.Sin@thomsonreuters.com; +852 5202 7991; Reuters Messaging: noah.sin.thomsonreuters.com@reuters.net; Twitter: https://twitter.com/noah_sin))

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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