Views Article – Sharenet Wealth

Asia, Forex

Yuan climbs to fresh 6-month top before holiday hiatus

By Noah Sin and Winni Zhou HONG KONG/SHANGHAI, Jan 20 (Reuters) – The yuan edged up to a new six-month high on Monday, with traders expecting the currency to stay firm before a week-long holiday, after China showed signs of economic recovery and sealed a long-awaited trade deal with the United States. The currency was also supported by a key benchmark interest rate staying unchanged. Analysts had been evenly split in their expectations of whether the rate would be lowered or kept steady as China keeps borrowing costs down to spur business activity. The yuan hit six-month highs last week as China reported better-than-expected growth figures for 2019, and signed the ‘Phase 1′ trade deal with Washington in which it pledged to refrain from competitive currency devaluation. “There are still clients hurrying to settle (to obtain yuan) as they see appreciation picking up pace, driving further appreciation,” said one trader at a Chinese bank in Shanghai. The onshore yuan firmed 0.16% to 6.8493 per dollar at midday, while the offshore yuan was 0.21% stronger at 6.853 per dollar, hitting fresh six-month peaks. The People’s Bank of China set the midpoint rate – onshore yuan can trade 2% on either side of the fixing – at a six-month high prior to the open, close to Reuters’ estimate. Trading will likely dwindle as the Lunar New Year holiday approaches, but that does not mean the yuan will have a quiet week, said a second trader in Shanghai. “Since liquidity is tight, if there are big orders, that could lead to volatility,” the trader said. Markets will be closed between Jan. 24 and 30. China kept its lending benchmark rate steady for the second month in a row on Monday, after the PBOC left the costs of medium-term loans (MLF) unchanged earlier this month. Jacqueline Rong, senior China economist at BNP Paribas in Beijing, said the steady LPR fixing came in slightly beyond her expectations as she had expected a 5 basis point cut to the LPR. “When the central bank lowered banks’ reserve requirement ratio by 50 basis points earlier this month, it was hoping to reduce the cost of funds for financial institutions to support the real economy. The PBOC has sent a strong signal and willingness.” “The steady LPR could reflect contributing banks’ situations as funding became tight before the Lunar New Year holiday,” she said. “After all, the MLF rate was not lowered this month meaning banks’ financing costs ahead of the holiday has definitely not fallen. Instead, short-end rates must have risen.” The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.88, slightly firmer than the previous day’s 93.76. The global dollar index inched up to 97.61 from the previous close of 97.606. The yuan market at 4:01AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8664 6.8878 0.31% Spot yuan 6.8493 6.8606 0.16% Divergence from -0.25% midpoint* Spot change YTD 1.66% Spot change since 2005 20.84% revaluation Key indexes: Item Current Previous Change Thomson 93.88 93.76 0.1 Reuters/HKEX CNH index Dollar index 97.61 97.606 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 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.853 -0.05% * Offshore 6.928 -0.89% 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. . (Additional reporting by Xiao Han in Beijing; Editing by Jacqueline Wong)

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