China's yuan climbs on trade talk momentum

HONG KONG, Feb 18 (Reuters) - The yuan rose on Monday after
China and the United States agreed to carry on negotiating for a
trade deal ahead of a looming March 1 deadline for an agreement,
with U.S. President Donald Trump hinting at a truce extension.
The world's largest economies will resume trade talks in
Washington this week, following week-long negotiations in
Beijing that both countries said had led to some progress.

"The main driver (for yuan appreciation) is the U.S.-China
talks. The result of that, which includes starting another round
(of talks) this week, is really beyond market expectation," said
a Shanghai-based trader with a Chinese bank.
Trump told reporters on Friday there was a possibility that
he would grant an extension to the March 1 deadline, helping to
tame fears of an escalation in the trade conflict. U.S. tariffs
on $200 billion in imports from China are set to rise to 25
percent from 10 percent if no deal is reached by March 1.
By 0345 GMT, spot yuan was changing hands at
6.7558 at midday, 192 pips stronger than the previous late
session close and 0.15 percent firmer than the midpoint of the
yuan's trading band.
The People's Bank of China set the daily midpoint rate
at 6.7659 per dollar prior to market open, weaker
than the previous fix of 6.7623.
But traders say support for the yuan hinges on the
forthcoming talks, as officials on both sides fell short of
"announcing anything material last week. This week is very
important," said a second trader in Shanghai, who works at a
foreign bank.
Carie Li, an economist at OCBC Wing Hang Bank in Hong Kong,
cautioned that the deadline extension is not yet set in stone.
"There will be resistance (against strengthening) in the 6.70
region," she said.
A weaker U.S. dollar lent the yuan additional support, said
the traders. The greenback fell on dovish comments from several
U.S. Federal Reserve policymakers as a slowing U.S. economy
reduces the need for the U.S. central bank to raise rates, and
as hopes for a trade deal boosted investors' appetite for
riskier assets.
The global dollar index fell off its Friday high of
97.368 to 96.721 by 0345 GMT on Monday.
With Beijing and Washington locked in ongoing talks,
domestic economic and credit data will likely take a backseat in
influencing the yuan's movements.
China's banks made the most new loans on record in January,
official data showed last week, as policymakers tried to boost
growth, while producer prices slowed for a seventh straight
month, raising deflation fears.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 94.81, firmer than the previous day's
94.67.
The offshore yuan was trading 0.1 percent weaker
than the onshore spot at 6.7625 per dollar.

The yuan market at 3:45AM GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.7659 6.7623 -0.05%

Spot yuan 6.7558 6.775 0.28%

Divergence from -0.15%
midpoint*
Spot change YTD 1.73%
Spot change since 2005 22.51%
revaluation

Key indexes:

Item Current Previous Change

Thomson 94.81 94.67 0.14
Reuters/HKEX
CNH index
Dollar index 96.721 96.904 -0.18


*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 6.7625 -0.10%
*
Offshore 6.7727 -0.10%
non-deliverable
forwards
**

*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
.

(Reporting by Noah Sin; Editing by Andrew Galbraith and
Jacqueline Wong)


2019-02-18 06:58:29

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