Yuan falls on dollar strength after Fed’s upbeat economic outlook

SHANGHAI, Sept 17 (Reuters) – China’s yuan slipped on Thursday, despite briefly touching a fresh 16-month high, as a firmer dollar interrupted the momentum of its recent strong run. The dollar edged up against major currencies on Thursday following the U.S. Federal Reserve’s upbeat assessment of the economic recovery and […]

    SHANGHAI, Sept 17 (Reuters) - China's yuan slipped on
Thursday, despite briefly touching a fresh 16-month high, as a
firmer dollar interrupted the momentum of its recent strong run.
    The dollar edged up against major currencies on Thursday
following the U.S. Federal Reserve's upbeat assessment of the
economic recovery and as its increased tolerance for higher
inflation to push bond yields higher.  
    Prior to the onshore market opening, the People's Bank of
China (PBOC) set the midpoint rate at 6.7675 per
dollar, 150 pips firmer than the previous fix of 6.7825. It was
the strongest guidance rate since May 9, 2019.
    In the spot market, onshore yuan opened at 6.7552
per dollar. It hit a fresh 16-month high of 6.7501, the loftiest
level since April 30, 2019, before slipping back to change hands
at 6.7768 at midday, 208 pips weaker than the previous late
session close.
    Traders said the dollar rebound could pour some cold water
on the yuan's appreciation.
    The current trading mechanism meant market fluctuations was
now larger, while it was normal to see the yuan fall on a dollar
rebound, said a trader at a Chinese bank.
    The yuan has risen more than 6% from lows against the dollar
in late May as China's economy has recovered from the fallout of
the coronavirus pandemic, although its rapid rise has raised
concerns.
    While China's exchange rate regime does not need to be
fundamentally changed, the country should closely monitor large
short-term capital inflows and the risk of a rapid yuan
appreciation, a former central bank official told a wealth
management forum. 
    Analysts said the yuan rally has yet to run it course.
    "There is a steady flow of foreign exchange earnings thanks
to China's strong export growth while demand for foreign
exchange purchases is limited," said Zhaopeng Xing, markets
economist at ANZ in Shanghai. 
    "Expectations for yuan appreciation are now
self-reinforcing, and companies sell dollars as soon as they
receive them," Xing added. 
    He said the PBOC, which has so far refrained from direct
intervention in the market, is certain to take some measures to
deal with the current imbalanced situation where there are only
dollar inflows. 
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 94.16, firmer than the previous day's
94.09. 
    The global dollar index rose to 93.508 from the
previous close of 93.19. 
    The offshore yuan was trading at 6.7768 per dollar
after hitting a high of 6.7332. 
    Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan' s value, traded
at 6.931, -2.36 percent away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.


    The yuan market at 3:47AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.7675   6.7825    0.22%
                                       
 Spot yuan          6.7768   6.756     -0.31%
                                       
 Divergence from    0.14%              
 midpoint*                             
 Spot change YTD                       2.75%
 Spot change since 2005                22.13%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         94.16       94.09     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.508      93.19     0.3
 
    
    
*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    6.7768    0.00%
        *                        
 Offshore              6.931     -2.36%
 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 Luoyan Liu, Jindong Zhang and Andrew Galbraith;
editing by Richard Pullin)
  
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