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Yuan firms, but gains capped as risk aversion supports greenback

SHANGHAI, Oct 14 (Reuters)China’s yuan firmed on Wednesday as the market continued to digest a central bank move over the weekend to arrest recent gains that led to a plunge earlier in the week, but growing risk aversion supported the dollar and capped its rise.

Before the market open, the People’s Bank of China (PBOC) set the midpoint rate of the yuan’s daily trading band CNY=PBOC at 6.7473 per dollar, weaker than the previous fix of 6.7296, but closer to market expectations.

Spot yuan CNY=CFXS opened at 6.7448 per dollar and firmed to 6.7405 at midday, 45 pips stronger than the previous late session close.

The offshore yuan CNH=D3 firmed to 6.735 per dollar from Tuesday’s close of 6.7398.

Even after Wednesday’s small gains, the onshore yuan is about 0.66% weaker against the dollar than its late session closing level on Friday, after the PBOC on the weekend scrapped a requirement for banks to hold a reserve of yuan forward contracts.

The announcement removed a guard against depreciation and sent the currency to its steepest drop since March on Monday, though international banks say the move is likely to have little longer-term impact.

A trader at a Chinese bank said the yuan would remain rangebound given a lack of direction in the dollar, but that in the longer term there was reason to be optimistic about the yuan’s prospects.

“In the short term the yuan will still trade in a range. There is still support at the USDCNY lows in March-April 2019, and there seems to be dollar selling around 6.75-6.76,” said another trader at a foreign bank.

The yuan’s firmer position on Wednesday followed a slight strengthening on Tuesday, supported by upbeat trade data that showed Chinese imports grew at their fastest pace this year in September, while exports extended their strong gains as more trading partners lifted coronavirus restrictions.

“The steady recovery and widened interest rate spread between China and the U.S. both bode well for the RMB in the near term,” analysts at ANZ said in a note.

On Wednesday, the global dollar index =USD stood at 93.53, just shy of its previous close of 93.542. The greenback has maintained its strength amid renewed questions about a coronavirus vaccine and little progress on the passage of U.S. fiscal stimulus.

The yuan market at 4:00AM GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.7473

6.7296

-0.26%

Spot yuan CNY=CFXS

6.7405

6.745

0.07%

Divergence from midpoint*

-0.10%

Spot change YTD

3.30%

Spot change since 2005 revaluation

22.79%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

94.55

94.31

0.3

Dollar index

93.53

93.542

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 CNH= *

6.735

0.08%

Offshore non-deliverable forwards CNY1YNDFOR= **

6.9028

-2.25%

*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 Andrew Galbraith and Jindong Zhang; Editing by Stephen Coates)

(([email protected]; +86 21 2083 0079; Reuters Messaging: [email protected] ; Twitter: https://twitter.com/apgalbraith))

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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