×

China's yuan rises to 10-1/2-month high on strong fixing, corporate dollar sales

sales@

SHANGHAI, Aug 10 (Reuters) - China's yuan firmed against the U.S. dollar on Thursday after the central bank lifted its guidance to the strongest level in 10-1/2 months, while corporate dollar sales also lent support. Prior to market opening, the People's Bank of China set the yuan midpoint at 6.6770 per dollar. It was the first setting stronger than the psychologically important 6.7 per dollar level since Sept. 30. Thursday's official guidance was 305 pips or 0.46 percent firmer than the previous fix at 6.7075 per dollar. The move in the guidance was the biggest one-day strengthening, in percentage terms, since June 1. In the spot market, the yuan opened at 6.6600 per dollar and was changing hands at 6.6713 at midday, 32 pips firmer than the previous late session close and 0.09 percent stronger than the midpoint. Traders said corporate dollar sales were quite heavy in morning trade, pushing the spot rate higher, as what had happened in the previous two days. "The market does not have a consensus how far the yuan could go, it depends on whether companies would sell more dollars," said a dealer at a foreign bank in Shanghai. The yuan has gained nearly 0.9 percent against the greenback so far this week, a rare move for a currency that only trades in a wafer-thin range. However, traders noted that geopolitical tensions were a big concern for the domestic foreign exchange market. North Korea's state media said on Thursday that North Korea would develop a plan by mid-August to launch intermediate-range missiles at the U.S. territory of Guam. The unusually detailed report of an attack plan by North Korea's official KCNA news agency marked a further escalation in tensions between Pyongyang and Washington after U.S. President Donald Trump warned North Korea earlier this week it would face "fire and fury" if it threatened the United States. Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong warned that the recent rise in the Chinese currency "might be overdone," as seen in gains in option volatilities both onshore and offshore. "We started to feel cautious to chase buying CNH at this level amid elevating geopolitical tensions in Asia," said Cheung. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.95, firmer than the previous day's 94.62. The global dollar index rose to 93.637 from the previous close of 93.548. The offshore yuan was trading 0.14 percent weaker than the onshore spot at 6.6807 per dollar. 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 6.8105, 1.96 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0359 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.677 6.7075 0.46% Spot yuan 6.6713 6.6745 0.05% Divergence from -0.09%

midpoint*

Spot change YTD 4.13% Spot change since 2005 24.06%

revaluation

Key indexes:

Item Current Previous Change Thomson 94.95 94.62 0.4

Reuters/HKEX CNH index

Dollar index 93.637 93.548 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 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.6807 -0.14% * Offshore 6.8105 -1.96%

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 Jacqueline Wong)