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Yuan hugs narrow ranges as U.S. election awaited

    SHANGHAI, Oct 27 (Reuters) - China's yuan firmed on Tuesday,
but traded in a narrow range as market participants tread
cautiously ahead of the U.S. election.  
    Traders said the U.S. election result is seen as a key risk
factor for the Chinese currency. 
    A win by Democratic candidate Joe Biden would support the
yuan, said a Shanghai-based trader at a foreign bank, although
he planned to lower exposure ahead of the election result given
the high uncertainty.  
    With eight days to go until the U.S. election, President
Donald Trump addressed boisterous rallies in Pennsylvania on
Monday, while Biden made a low-key appearance in the state
considered crucial to the chances of victory for both men.
 
    Prior to the market open, the People's Bank of China set the
midpoint rate at 6.6989 per dollar, the weakest since
Oct. 19, and 264 pips softer than the previous fix of 6.6725. 
    The spot market opened at 6.7040 per dollar and
was changing hands at 6.7035 at midday, 83 pips firmer than the
previous late session close. 
    "Nothing is certain about the U.S. election. There might be
a third possibility (besides a Trump or Biden win) that the
election (result) is delayed," said Xing Zhaopeng, markets
economist at ANZ in Shanghai. 
    The USD/CNY could rise in the short-term as investors seek
shelter in the greenback, although the room for a more sustained
yuan correction is limited given China's firm economic
fundamentals, the Shanghai trader said.  
    Profits at China's industrial firms rose for a fifth
straight month in September, but at a slower pace as
factory-gate deflation and rising raw materials costs undercut a
recovery in the manufacturing sector. 
    The dollar clung to small gains on Tuesday as the
greenback's safe-haven appeal was burnished by worries about a
second wave of COVID-19, which drove the steepest stock market
selloff in a month and underpinned a bond rally. 
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 94.74, weaker than the previous day's
94.86. 
    The global dollar index fell to 92.975 from the
previous close of 93.074. 
    The offshore yuan was trading at 6.6961 per dollar
by midday. 
    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 6.8568, -2.30 percent away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.


    The yuan market at 3:57AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.6989   6.6725    -0.39%
                                       
 Spot yuan          6.7035   6.7118    0.12%
                                       
 Divergence from    0.07%              
 midpoint*                             
 Spot change YTD                       3.87%
 Spot change since 2005                23.47%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         94.74       94.86     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.975      93.074    -0.1
 
    
    
*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    6.6961    0.11%
        *                        
 Offshore              6.8568    -2.30%
 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 Luoyan Liu, Han Xiao and Andrew Galbraith;
editing by Richard Pullin)
  
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