January 5, 2018 / 10:26 AM / 10 months ago

China's yuan gains for fourth week on economic data, higher rates

SHANGHAI (Reuters) - The Chinese currency, the yuan, was firmer against the U.S. dollar on Friday, capping its fourth consecutive week of gains, aided by China’s solid economic data and tighter liquidity as well as expectations of more foreign capital inflows.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

In the spot market CNY=CFXS, the yuan opened at 6.4810 per dollar and was at 6.4851 by the 0830 GMT domestic close, scoring a four-week winning streak against the greenback.

The offshore yuan was trading 0.10 percent away from the onshore spot at 6.4806 per dollar.

Confidence in the yuan has been building up on signs of resilience in China’s economy. A blizzard of data in coming weeks is expected to show China’s economy ended a strong 2017 on a slightly softer note, but activity has likely remained more resilient than expected. Sources told Reuters China will keep its target for economic growth at “around 6.5 percent” in 2018, unchanged from last year.

Analysts also attributed the yuan’s strength to tighter liquidity conditions in China’s financial system, which has kept interest rates elevated.

China’s benchmark 10-year government bond yield CNY10YT=RR hovered near 4 percent, the highest in three years, compared with 2.45 percent for 10-year U.S. Treasuries US10YT=TWEB, as Beijing’s deleveraging campaign helped widen the spread.

The yuan’s recent performance is “perhaps reflective of the tight liquidity conditions onshore as well as optimism offshore about portfolio inflows,” National Australia Bank wrote in a note.

“Barring a strong recovery in the USD in pace and extent in coming weeks, capital flows may still be constructive for CNY and CNH and may push USD/CNY towards 6.45 immediate key support.”

Meanwhile, the U.S. currency’s lack of traction was highlighted overnight as the dollar failed to draw support from the stronger-than-expected jobs report.

Reporting by Samuel Shen and John Ruwitch; Editing by Jacqueline Wong

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