Monday, October 18

China’s yuan nears 1-month high on hopes of improving Sino-US ties


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SHANGHAI — The yuan touched a near

one-month high against the dollar on Monday as weekend talks

between senior Chinese and US officials raised hopes the two

sides may find ways to start ironing out a host of disputes.

Currency traders said the market largely shrugged off broad

dollar strength over expectations for US Federal Reserve’s

stimulus tapering from next month, as investors focusing more on

recent developments in Sino-US relations.

China said on Saturday it pressed the United States to

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eliminate tariffs in talks between the countries’ top trade

officials that Washington saw as a test of bilateral engagement

between the world’s biggest economies.

Trade disputes between Beijing and Washington have been one

of the key factors influencing the Chinese currency over the

past few years.

Rising expectations of a possible partial removal of US

trade tariffs lent support to the yuan, said Tommy Xie, head of

Greater China research at OCBC Bank.

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

(PBOC) set the midpoint at 6.4479 yuan per dollar,

125 pips, or 0.2%, stronger than the previous fix of 6.4604. It

was the firmest since Sept. 16.

The strengthened official guidance rate pushed China’s

trade-weighted yuan basket index to 100.09, the

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highest since Feb. 3, 2016, and up 5.54% so far this year,

according to Reuters’ calculations based on official data.

In the spot market, onshore yuan opened at 6.4420

per dollar and strengthened to a high of 6.4389, the strongest

level since Sept. 16. By midday, it was changing hands at

6.4376, 64 pips firmer than the previous late session close.

A trader at a foreign bank said he expected the yuan

strength to continue in the short term, but added that “if the

trade surplus shrunk this month, or there would be no

substantial improvements in the Sino-US relations, the yuan

could weaken.”

Meanwhile, tighter liquidity conditions in the onshore

interbank money market following the PBOC’s move to withdraw

cash from the banking system also lent support to the yuan,

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according to traders.

The PBOC withdrew the most cash on a net basis in a year for

the week last week, and drained another 190 billion yuan via

open market operations on Monday, bringing total net cash

withdrawal to 510 billion yuan after the week-long holiday ended

on Oct. 7.

The volume-weighted average rate of the benchmark overnight

repo traded in the interbank market, considered

one of the best indicators of general liquidity in China, rose

to 2.1316% on Monday morning, the highest since Sept. 22.

By midday, the global dollar index traded at 94.144,

while the offshore yuan was trading at 6.441 per

dollar.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.4479 6.4604 0.19%

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Spot yuan 6.4376 6.444 0.10%

Divergence from -0.16%

midpoint*

Spot change YTD 1.41%

Spot change since 2005 28.56%

revaluation

Key indexes:

Item Current Previous Change

Thomson 100.17 100.04 0.1

Reuters/HKEX

CNH index

Dollar index 94.144 94.164 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 6.441 -0.05%

*

Offshore 6.6262 -2.69%

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 Kim

Coghill)

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