March 27, 2018 / 5:16 AM / 4 months ago

Yuan hits 7-week top after PBOC sets midpoint at highest since 2015 devaluation

    * Onshore yuan rises to 7-week high
    * Offshore yuan surges to highest since Aug 2015
    * Official fixing at highest since 2015 devaluation
    * Strong fix and dollar weakness prompt yuan buying
    * Worries over possible trade war ease

 (Updates prices, adds quotes and table)
    SHANGHAI, March 27 (Reuters) - China's yuan extended its
gains against the U.S. dollar to a seven-week high on Tuesday
after the central bank set its official fixing at the strongest
level in more than 2 1/2  years.
    Prior to market open, the People's Bank of China (PBOC)
lifted its official yuan midpoint to 6.2816 per
dollar, 377 pips or 0.6 percent firmer than Monday's fix of
6.3193.
    Tuesday's official guidance rate was also the strongest
since Aug. 11, 2015, when China shocked global markets with a
sharp 2 percent currency devaluation.
    The official fixing on Tuesday largely matched market
expectations. And the strength in the fixing drove the spot yuan
higher.
    The onshore yuan opened at 6.2579 per dollar and
surged to a high of 6.2523 at one point in early trade, the
strongest level since Feb. 7.
    As of midday, spot yuan was changing hands at 6.2602 per
dollar, 205 pips firmer than the previous late session close and
0.34 percent stronger than the midpoint. 
    The global dollar index, a gauge that measures the
unit's strength against six other major currencies, stood at
89.058 as of midday, languishing near a five-week low of 88.979
set on Monday.
    Some traders said the domestic market expects the yuan to
swing between 6.3 and 6.36 per dollar in the near-term. Market
sentiment improved when the spot yuan rate breached the stronger
end of the tight range and prompted significant dollar sales
from both market participants and bank clients.
    Implied volatility in yuan options, which gauges
investors' expectations for swings in the dollar against the
Chinese currency, improved on Tuesday.
    Market watchers said the yuan gained momentum as worries
about a possible trade war between the world's two largest
economies eased.
    "The sudden appreciation of renminbi against the dollar and
currency basket shows that the market believes that China is
likely to compromise to ease the trade tension," economists at
OCBC Bank said in a note.
    Chinese Premier Li Keqiang said on Monday that China and the
United States should continue negotiations, reiterating a pledge
to ease access for U.S. businesses, as China scrambles to avert
a trade war.
    Separately, North Korean leader Kim Jong Un has visited
China, Bloomberg reported on Monday citing three unnamed
sources, in what would be his first known overseas trip since
taking power in 2011 and ahead of a potential summit with U.S.
President Donald Trump.
    "The surprise visit is in general positive for the
geopolitical situation on the Peninsula," Scotiabank FX
strategist Gao Qi said in a note, also suggesting the visit
could possibly help to ease trade tensions beteen China and the
United States. 
    The offshore yuan also strengthened, surging to a
high of 6.2400 at one point, the firmest level since Aug. 11,
2015. It was trading 0.13 percent firmer than the onshore spot
at 6.2522 per dollar at midday.
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 97.79, firmer than the previous day's
97.46.
    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 6.36, 1.23 percent weaker than the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.
    
    The yuan market at 0418 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.2816   6.3193    0.60%
                                       
 Spot yuan          6.2602   6.2807    0.33%
                                       
 Divergence from    -0.34%             
 midpoint*                             
 Spot change YTD                       3.94%
 Spot change since 2005                32.21%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         97.79       97.46     0.3
 Reuters/HKEX                          
 CNH index                             
 Dollar index    89.058      89.027    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 percent from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.2522    0.13%
        *                        
 Offshore              6.36      -1.23%
 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 John Ruwitch; Editing by Sam
Holmes and Eric Meijer)
  
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