Yuan edges up, firmer fixing calms worries over Sino-U.S. tensions

SHANGHAI, June 2 (Reuters) - The yuan inched up on Tuesday,
reflecting broad weakness in the dollar, while the central
bank's firmer-than-expected midpoint helped to soothe concerns
about rising U.S.-China tensions.
Prior to market opening, the People's Bank of China (PBOC)
set the midpoint at 7.1167 per dollar, 0.2% firmer
than previously. Tuesday's midpoint came in again much stronger
than market projections, as it has been in the past week.
In the spot market, onshore yuan opened at 7.1140
per dollar and was changing hands at 7.1198 at midday, 92 pips
firmer than the previous late session close.
The yuan is sensitive to developments in Sino-U.S.
relations, traders said, and the PBOC's firmer-than-expected
daily fixing could be interpreted as an official attempt to keep
the currency steady.
"As long as the Phase 1 trade deal is still being
implemented, the yuan should be well capped at the stronger side
of 7.2 per dollar," said a trader at a Chinese bank.
Market sentiment turned jittery in late trade on Monday
after a Bloomberg report, citing sources, said China had ordered
major state-run firms to pause some U.S. agricultural goods
purchases as Beijing evaluates tensions with Washington over
Hong Kong.
"Re-escalation of China-U.S. tensions will likely cap the
RMB upside while the downside will probably be protected by the
status-quo of the Phase 1 deal and the USD decline, leaving the
CNH range trading in 7.10-7.20 in the near term," Ken Cheung,
chief Asian FX strategist at Mizuho Bank, said in a note.
The offshore yuan was trading at 7.1292 per dollar
as of midday.
Meanwhile, markets barely reacted to the PBOC's plan to buy
back loans to spur lending to smaller businesses, but several
traders said the move could indicate a switch from massive
monetary easing to credit expansion. Expectations for less
liquidity could support the currency, they added.
The PBOC said late on Monday it would start buying bank
loans made by local lenders to small firms this week to try to
prod banks to lend as much as 1 trillion yuan ($140.50 billion)
to small businesses amid the coronavirus pandemic.
The global dollar index traded at 97.878 at midday,
compared with the previous close of 97.875.
The yuan market at 0405 GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 7.1167 7.1315 0.21%

Spot yuan 7.1198 7.129 0.13%

Divergence from 0.04%
midpoint*
Spot change YTD -2.20%
Spot change since 2005 16.25%
revaluation

Key indexes:

Item Current Previous Change

Thomson 91.76 91.82 -0.1
Reuters/HKEX
CNH index
Dollar index 97.878 97.875 0.0

*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 7.1292 -0.13%
*
Offshore 7.2235 -1.48%
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.
.

($1 = 7.1174 Chinese yuan)


(Reporting by Winni Zhou and Andrew Galbraith; Editing by
Jacqueline Wong)


2020-06-02 07:20:58

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