China's yuan spikes to 14-month high, dollar sales pick up

SHANGHAI, Aug 30 (Reuters) - China's yuan climbed to a 14-month high against the U.S. dollar on Wednesday, after the central bank set sharply firmer guidance and following stronger institutional and corporate dollar sales. The onshore yuan has gained 2.2 percent against the dollar so far this month, a sizable gain for a currency that typically trades in a wafer-thin range. The renminbi is set for its biggest monthly gain since 1994, when China unified official and market exchange rates and price data was available. Prior to market opening on Wednesday, the People's Bank of China raised its official yuan midpoint to 6.6102 per dollar, the strongest since Aug. 17, 2016. Wednesday's midpoint was 191 pips or 0.29 percent firmer than the previous fix of 6.6293 set on Tuesday. Some market players said the fixing came in weaker than their models had suggested. In the spot market, the onshore yuan rose for the fourth straight day. It opened at 6.5980 per dollar and was changing hands at 6.5818 by midday, 138 pips firmer than the previous late session close of 6.5956 and 0.43 percent stronger than the midpoint. Its offshore spot also strengthened in morning trade. It was 0.06 percent softer than the onshore spot at 6.5859 per dollar as of midday. The yuan breached the psychologically important 6.6 per dollar level late on Tuesday, triggering selling from both companies and traders, they said. "Dollar sales were much heavier today," said a trader at a Chinese bank in Shanghai, adding market participants who held long dollar positions at around 6.6 per dollar level were liquidating to stop losses. Companies who hold large amounts of dollars were also selling to reduce exchange losses in morning trade on Wednesday. Separately, cash conditions remained tight on Wednesday as the central bank drained a net 100 billion yuan ($15.2 billion) from the market through open market operations. The Shanghai Interbank Offered Rate (SHIBOR) for all tenors rose for a second day on Wednesday, with the overnight rate fixed at the highest level since April 2015. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.46, firmer than the previous day's 95.03. The global dollar index rose to 92.27 from the previous close of 92.249. 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 6.7315, 1.80 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0353 GMT:


Item Current Previous Change PBOC midpoint 6.6102 6.6293 0.29% Spot yuan 6.5818 6.5956 0.21% Divergence from -0.43%


Spot change YTD 5.54% Spot change since 2005 25.75%


Key indexes:

Item Current Previous Change Thomson 95.46 95.03 0.5

Reuters/HKEX CNH index

Dollar index 92.27 92.249 0.0

*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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.5859 -0.06% * Offshore 6.7315 -1.80%

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)