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Yuan set for best quarter since 2008 global financial crisis

    SHANGHAI, Sept 30 (Reuters) - The yuan inched up against the
dollar on Wednesday, underpinned by upbeat manufacturing data,
with the Chinese unit on course for its best quarter since the
global financial crisis in 2008.
    China's factory activity extended solid growth in September,
according to both official and private surveys, as the nation's
crucial exports engine revved up on improving overseas demand
and also underlined a steady economic recovery from the
coronavirus shock.
    The country's vast industrial sector is steadily returning
to levels seen before the pandemic paralysed huge swathes of the
economy early this year.
    Apart from the sound economic fundamentals, a broadly weaker
dollar and continued capital inflows also supported the Chinese
currency.
    Spot yuan opened at 6.8115 per dollar before
easing to 6.8120 at midday. If it retains all the gains at
late-night close, the Chinese unit would have gained 3.71% to
the dollar between July and September, marking the best quarter
since the first quarter of 2008.
    "With the confidence that RMB appreciation is no longer
associated with one-way flows, herd mentality and speculative
behaviour, we believe the PBOC will continue with FX reforms,
including RMB internationalisation," HSBC said in a note,
expecting the yuan to end the year at 6.70 per dollar and rise
further to 6.60 at end-2021.
    As the market is about enter a week-long National Day
holiday, many market participants liquidated their positions and
refrained from betting either side of the currency due to
uncertainty from overseas markets, traders said.
    China's financial markets will be shut from Oct. 1-8, while
trade will resume on Oct. 9.
    Some investors said one of the biggest market risks could
yield from the U.S. presidential campaign, although the first
debate between President Donald Trump and Democrat Joe Biden
offered little clues on their China policy agenda.
    Separately, tighter cash condition in the interbank market
also propped up the yuan. Forwards climbed to the highest in
more than three years on morning trade, as liquidity demand
jumped ahead of the Golden Week holiday.
    The People's Bank of China set the midpoint rate
at 6.8101 per dollar, 70 pips firmer than the previous fix of
6.8171. 

    The yuan market at 0403 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.8101   6.8171    0.10%
                                       
 Spot yuan          6.812    6.8149    0.04%
                                       
 Divergence from    0.03%              
 midpoint*                             
 Spot change YTD                       2.22%
 Spot change since 2005                21.50%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         93.98       94.02     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.96       93.867    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    6.8154    -0.05%
        *                        
 Offshore              6.973     -2.34%
 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
Sherry Jacob-Phillips)
  
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