Views Article – Sharenet Wealth

Asia, Forex

Yuan climbs to 3-1/2-month high, but unexpectedly soft fix trims gains

SHANGHAI, July 7 (Reuters) – The yuan advanced further to a fresh 3-1/2 month peak and tested key resistance on Tuesday, although weaker-than-expected guidance by the central bank trimmed gains. Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0310 per dollar, 0.5% firmer than the previous fix and the strongest since April 13. However, traders and analysts said Tuesday’s guidance rate came in slightly weaker than their forecasts. It was also 39 pips weaker than Reuters’ estimate of 7.0271. The deviation quickly dragged down the offshore yuan after it had risen past the key 7-per-dollar level in early trade. “The midpoint fixing doesn’t seem to quite encourage (yuan) appreciation,” said a chief trader at a Chinese bank. Traders noticed spot yuan faced a bit of resistance near the 7-per-dollar mark, with some investors loading up on cheaper dollars erasing intraday gains in the currency. Onshore yuan opened at 7.0155 per dollar and jumped to a high of 7.0002, the strongest since March 17. By midday, it was changing hands at 7.0151, 43 pips firmer than the previous late session close. Several yuan traders said the currency’s movements in the near term would be highly dependent on the A-share market’s performance. Chinese share rose for a sixth straight session on Tuesday, extending a robust rally a day earlier on optimism over economic recovery and policy stimulus. But analysts at China Construction Bank (Asia) warned that external risks for China were high amid signs of possible sanctions in various areas by the United States. Barring a further deterioration in Sino-U.S. relations, the yuan could rise towards 7 per dollar in the short term, supported by stock market gains and economic fundamentals. “But the market has to be aware of a possible sudden suppression in the yuan exchange rate from news headlines about the China-U.S. moves,” they said in a note. At midday, the global dollar index rose to 96.77 from the previous close of 96.749. The offshore yuan was trading at 7.0145 per dollar. The yuan market at 0401 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.031 7.0663 0.50% Spot yuan 7.0151 7.0194 0.06% Divergence from -0.23% midpoint* Spot change YTD -0.74% Spot change since 2005 17.98% revaluation Key indexes: Item Current Previous Change Thomson 92.56 92.31 0.3 Reuters/HKEX CNH index Dollar index 96.77 96.749 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 7.0145 0.01% * Offshore 7.144 -1.58% 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 Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong)

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