September 8, 2017 / 5:14 AM / 10 months ago

RPT-China's yuan extends blistering 2017 rally to 7.5 pct after breaching key level

 (Repeating to more subscribers)
    SHANGHAI, Sept 8 (Reuters) - China's yuan kept strengthening
sharply against the U.S. dollar on Friday after blowing past the
key 6.5 per dollar level a day earlier, and headed for its best
week since revaluation in 2005.
    The yuan's year-to-date gains against the dollar have topped
7.5 percent, easily erasing the 6.5 percent loss suffered last
    The Chinese currency, coming back into the global spotlight,
has strengthened more than 2,600 pips since the beginning of the
August, an unusual run given it normally moves in a narrow
    Prior to Friday's market opening, the People's Bank of China
raised its official yuan midpoint for the 10th
straight session, to 6.5032 per dollar, the strongest since May
12, 2016. 
    The last time the midpoint had a stronger fixing for 10
consecutive days was in December 2010.
    But Friday's midpoint - 237 pips or 0.36 percent firmer than
the previous one of 6.5269 per dollar - was weaker than market
expectations, traders said.
    Their forecasts had suggested the guidance might be firmer
than 6.5 per dollar, the level the yuan broke through on
Thursday, for the first time since May 2016.
    "It seems that the PBOC intends to smooth the yuan
appreciation pace as rapid appreciation in the yuan could harm
the growth, especially for exports sector," said Ken Cheung,
senior Asian FX strategist at Mizuho Bank in Hong Kong.
    He said he had expected Friday's midpoint to be around 6.49
to the dollar.
    The weaker-than-expected midpoint failed to cool the strong
momentum in the spot market.
    The onshore spot yuan opened at 6.4800 per
dollar, surged to a high of 6.4478 at one point before changing
hands at 6.4600 at midday, 250 pips firmer than the previous
late session close and 0.66 percent stronger than the midpoint.
    The intraday levels were the strongest seen December 2015.
    If the spot yuan finishes the late night session at the
current level, it will have gained 1.54 percent for the week,
the highest weekly gain since the yuan was revalued in July
2005. Last week, the yuan gained around 1.4 percent.
    At midday, the offshore yuan was trading 0.03
percent weaker than its onshore counterpart at 6.4619 per
    Traders said Friday's yuan strength was supported by
corporate dollar sales, along with broad weakness in the dollar
in global markets following gains in the euro, as a
policy meeting by the European Central Bank gave bulls cause for
short-term optimism.
    A trader at a Chinese bank in Shanghai said the market had
believed that the 6.5 per dollar level was the bottom for the
yuan. But since the spot rate breached that level on Thursday,
participants now were waiting to see when authorities would
"start to purchase long dollar positions stuck at state-owned
banks", he said.
    Another trader at a Chinese bank said companies rushed to
sell dollars to reduce exchange losses on Friday, while
proprietary trade was not affected after the yuan hit new highs
against the greenback.
    China's foreign exchange reserves edged up for a seventh
straight month in August as a surging yuan and tighter
regulations signal the tide may be turning in China's battle
against outflows.
    On Friday morning, official data showed that China's exports
rose by 5.5 percent from a year earlier, below market
expectations, while imports beat forecasts, growing 13.3 percent
last month.
    The August trade data had no impact on the spot yuan trade,
according to market participants. But analysts said the soft
China export figures should highlight the overshooting risk in
the yuan. 
    "We remain cautious about the RMB overshooting risk and not
favour to chase the RMB rally at this level," Mizuho's Cheung
said in a note.
    The yuan market at 0412 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.5032   6.5269    0.36%
 Spot yuan          6.46     6.485     0.39%
 Divergence from    -0.66%             
 Spot change YTD                       7.53%
 Spot change since 2005                28.12%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         96.55       96.41     0.1
 CNH index                             
 Dollar index    91.227      91.663    -0.5
*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    6.4619    -0.03%
 Offshore              6.593     -1.36%
*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 David Stanway; Editing by Richard
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