China’s yuan hovers at 3-1/2-yr high, basket index at strongest since 2015

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SHANGHAI — China’s yuan hovered at a more

than 3-1/2-year high against the dollar on Tuesday, while its

value against major trading partners jumped to strongest level

since late 2015, underpinned by persistent corporate demand

before the long holiday.

Currency traders said the yuan largely shrugged off the

broad dollar strength in global markets against the backdrop of

safe-haven demand due to worries over a faster pace of Federal

Reserve policy tightening and potential military conflict in

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Ukraine.

Prior to market opening, the People’s Bank of China (PBOC)

set the midpoint rate at 6.3418 per dollar, 7 pips

weaker than the previous fix 6.3411. But it was 32 pips weaker

than Reuters’ estimate of 6.3386.

While most other non-dollar currencies booked losses against

a rising greenback, yuan’s strength sent its trade-weighted

CFETS basket index to 103.21, the highest level since

Nov. 18, 2015, Reuters calculation based on official data.

“Everyone was selling dollars (for yuan),” said a trader at

a foreign bank.

The spot yuan opened at 6.3280 per dollar and was

changing hands at 6.3296 at midday, 8 pips firmer than the

previous late session close. The spot price hit a high of 6.3238

in late trade on Monday, the loftiest level since May 2018.

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FX conversion before the week-long Lunar New Year holiday,

which starts on Jan. 31, has been traditionally heavier as

exporters need to settle their dollar receipts for goods

payments and bonus employeees, but markets widely expect some

weakness could kick in soon.

“Corporate’s FX settlement could weaken in light of slowing

export growth in the next few months to drag the yuan lower,”

said Marco Sun, chief financial markets analysts at MUFG Bank.

But Sun noted investors can’t rule out more intensified

policy stimulus than the market has expected to offer support

for sentiment and the currency prices.

“Barring unexpectedly lethal (COVID-19) variants, demand

recovery may be broaden in the rest of the world especially

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within Asia where vaccination rates have caught up. In such an

environment, we are more negative on the CNY on a trade weighted

basis,” analysts at Maybank said in a note.

Still, several traders said markets would likely wait till

mid-March after Beijing holds the Winter Olympic Games and the

annual parliamentary gathering as the authorities are usually

keen to preserve financial markets stability during key

events.

By midday, the global dollar index rose to 95.966

from the previous close of 95.918, while the offshore yuan

was trading at 6.3359 per dollar.

The yuan market at 0401 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.3418 6.3411 -0.01%

Spot yuan 6.3296 6.3304 0.01%

Divergence from -0.19%

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midpoint*

Spot change YTD 0.40%

Spot change since 2005 30.76%

revaluation

Key indexes:

Item Current Previous Change

Thomson 102.95 102.79 0.2

Reuters/HKEX

CNH index

Dollar index 95.966 95.918 0.1

*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 6.3359 -0.10%

*

Offshore 6.453 -1.72%

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

Lincoln Feast.)