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Yuan extends rally as focus shifts to U.S. election

    SHANGHAI, Nov 2 (Reuters) - The yuan extended gains on
Monday, underpinned by China's manufacturing rebound from
coronavirus disruptions while the market turned its focus to the
U.S. presidential election.
    A private business survey on Monday showed that activity in
China's factory sector accelerated at the fastest pace in nearly
a decade in October as domestic demand surged.
    On Saturday, another gauge showed factory activity expanded
at a slightly slower pace, but was above analysts' expectations,
suggesting a continuing economic recovery for the world's
second-largest economy from the pandemic.
    Improving economic performance and increasing capital
inflows have pushed the yuan higher for five months through
October. Many investors believe the Chinese currency could rise
further against the backdrop of sound economic fundamentals.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint at a near one-week high of 6.705 per
dollar, 182 pips or 0.27% firmer than the previous fix of
6.7232. 
    The onshore yuan opened at 6.6940 per dollar and
was changing hands at 6.6878 at midday, 54 pips firmer than the
previous late session close.
    Traders said the second wave of coronavirus infections and
fresh lockdown measures in Europe have soured risk sentiment in
global markets, but the dollar was holding its recent gains on
safety bids ahead of the U.S. presidential election.
    "For this week, the U.S. election is the top priority," said
Li Liuyang, chief currency analyst at China Merchants Bank,
expecting the yuan to trade in a range of 6.6 to 6.75 per dollar
this week depending on the election result.
    Speculative bets that Joe Biden will win the White House on
Nov. 3 and bring a steadier tone to rocky Sino-U.S. relations
have turbocharged the strongest yuan rally in years.
    The central bank has, however, pushed back against the gains
by cutting the cost of shorting the currency and tweaking how it
sets its trading range to remove barriers to declines.

    The global dollar index rose to 94.138 at midday,
when the offshore yuan traded at 6.6913 per dollar. 

    The yuan market at 0417 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.705    6.7232    0.27%
                                       
 Spot yuan          6.6878   6.6932    0.08%
                                       
 Divergence from    -0.26%             
 midpoint*                             
 Spot change YTD                       4.12%
 Spot change since 2005                23.76%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.51       95.24     0.3
 Reuters/HKEX                          
 CNH index                             
 Dollar index    94.138      94.1      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    6.6913    -0.05%
        *                        
 Offshore              6.8533    -2.16%
 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
Jacqueline Wong)
  
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