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China's yuan jumps to 2-month high in "show of strength" after downgrade-traders
May 25, 2017 / 5:24 AM / 7 months ago

China's yuan jumps to 2-month high in "show of strength" after downgrade-traders

 (Adds details and background)
    SHANGHAI, May 25 (Reuters) - China's yuan leapt to a near
two-month high against the U.S. dollar on Thursday, supported by
major state-owned banks in what some traders said was a show of
strength a day after Moody's downgraded the country's credit
    "Major state-owned banks were selling dollars in the
market," said a trader at a Chinese bank in Shanghai, adding
that it "clearly showed" the authorities' interest in keeping
the currency strong.
    Banks poured dollars into the market after the yuan remained
stubbornly flat in morning trade despite U.S. dollar weakness
overseas, traders said.
    In the spot market, the yuan opened at 6.8860 per
dollar and suddenly strengthened nearly 200 pips to a high of
6.8690 per dollar at around 0250 GMT, the strongest intraday
level since March 27.
    It was changing hands at 6.8737 per dollar at midday, 158
pips stronger than the previous late session close but 0.06
percent weaker than the midpoint.
    The yuan appeared to be on track to firm by around 0.2
percent, which would mark its biggest one-day gain against the
dollar since Feb. 16. 
    Many believe sales of dollars by state-owned banks since
late last year have been part of official efforts to prop up the
Chinese currency, which lost 6.5 percent of its value against
the dollar last year and was widely expected to continue to slip
this year.
    The People's Bank of China set the midpoint rate
at 6.8695 per dollar on Thursday, firmer than the previous fix
of 6.8758 and stronger than some market watchers had expected.
    Five traders said they saw state banks offering dollars in
the market on Thursday.
    One who declined to be identified by name said he also
suspected the dollar selling and sharp upward pressure on the
yuan was being directed by the government in a show of strength
after the downgrade.
    The moves by state banks pushed the daily trading volume
 to $17.46 billion as of midday, compared with
$23.79 billion yuan for the full previous session.
    The yuan had dipped on Wednesday on corporate dollar demand,
with the market appearing to largely shrug off Moody's first
downgrade of China's sovereign credit rating for the first time
since 1989.
    Wednesday's PBOC fixing also had been somewhat stronger than
expected, reflecting a recent pattern of firmer guidance.
    China's Finance Ministry said the downgrade overestimated
the risks to the economy and was based on "inappropriate
    Separately, China's commerce ministry said in a report
published on Thursday that while the central bank had intervened
periodically in the foreign exchange market to "prevent
overshooting and short-term volatility", its operations did not
amount to exchange rate manipulation.
    Offshore, the yuan also surged to its strongest
intraday level since March 28. It was trading 0.1 percent firmer
than the onshore spot at 6.8654 per dollar.
    Hong Kong's overnight yuan borrowing rate
jumped to 4.16500 percent on Thursday, the highest level in
three weeks.
    CNH Hibor, The CNH Hong Kong Interbank Offered
Rate benchmark, set by the city's Treasury Markets Association
(TMA), showed rates up across maturities.
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 93.31, weaker than the previous day's
    The global dollar index fell to 96.924 from the
previous close of 97.238. 
    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 7.061, 2.71 percent weaker than the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
    The yuan market at 0407 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.8695   6.8758    0.09%
 Spot yuan          6.8737   6.8895    0.23%
 Divergence from    0.06%              
 Spot change YTD                       1.06%
 Spot change since 2005                20.41%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         93.31       93.44     -0.1
 CNH index                             
 Dollar index    96.924      97.238    -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 percent from official midpoint rate it sets each

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.8654    0.12%
 Offshore              7.061     -2.71%
*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, Sun Qizi and John Ruwitch; Editing by
Kim Coghill)

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