July 28, 2020 / 5:05 AM / 8 days ago

Yuan hits brief one-week high but pares gains as Sino-U.S. tension weighs

    SHANGHAI, July 28 (Reuters) - The yuan briefly hit a
one-week high against the dollar on Tuesday morning before
giving back all the intraday gains, as Sino-U.S. tension
continued testing investors' nerves and outweighed broad dollar
weakness.
    Market participants became cautious and watched closely for 
further moves by the world's two largest economies as diplomatic
ties deteriorated recently.
    China took over the premises of the U.S. consulate in the
southwestern city of Chengdu on Monday, after ordering it
vacated in retaliation for China's ouster last week from its
consulate in Houston, Texas.
    Before the open, the People's Bank of China (PBOC) set the
midpoint rate at 6.9895 per dollar, 134 pips or 0.2%
firmer than the previous fix of 7.0029, and the strongest since
July 22.
    In the spot market, onshore yuan opened at 6.9880
per dollar and rose to a high of 6.9870 at one point, the
highest level since July 22.
    By midday, it was changing hands at 7.0015, 35 pips weaker
than the previous late session close.
    Traders said some strength in the yuan was reacting to the
dollar weakness, but market participants quickly took profit in
long yuan positions when the spot price rose past the key
psychological level of seven to the dollar.
    The dollar nursed losses, after slumping to a two-year low,
as investors worry about damage to the U.S. economy wrought by
the coronavirus and await the latest outlook from the Federal
Reserve and passage of a new fiscal rescue package.
    Analysts at China Construction Bank (Asia) said ties between
China and the United States will be key in deciding the yuan
exchange rate before the U.S. presidential election in November.
    "The market has been very sensitive to any news headline
about developments in Sino-U.S. relations. Any negative info
could pressure the yuan in a very short period of time," they
said in a note, expecting the Chinese currency to swing around
the level of seven to the dollar in the near term.
    The offshore yuan was trading at 7.0023 per dollar
by midday. 
    
    The yuan market at 0407 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9895   7.0029    0.19%
                                       
 Spot yuan          7.0015   6.998     -0.05%
                                       
 Divergence from    0.17%              
 midpoint*                             
 Spot change YTD                       -0.55%
 Spot change since 2005                18.21%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.53       91.56     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.85       93.538    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    7.0023    -0.01%
        *                        
 Offshore              7.1407    -2.12%
 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
Clarence Fernandez)
  
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