SHANGHAI, Dec 20 (Reuters) - China's yuan rose to its strongest level in three weeks against the dollar on Wednesday, supported by a firmer official fixing and some dollar sales driven by year-end seasonal flows. The dollar index was steady against a basket of six other major currencies at 93.443 as of midday, compared with the previous close of 93.441. Demand for the greenback was limited as the U.S. Congressional Republicans hit a last-minute snag on Tuesday in their drive to pass the biggest tax overhaul in 30 years. Another vote was required to be held on Wednesday, delaying what was still likely to be the Republicans' first major legislative win under the President Donald Trump. Prior to market opening on Wednesday, the People's Bank of China set the midpoint rate at 6.6066 per dollar, 23 pips or 0.05 percent firmer than the previous fix of 6.6098 on Tuesday. Traders said the yuan was supported as some market participants liquidated their dollar long positions for their proprietary trade. In the spot market, the onshore yuan opened at 6.6046 per dollar and rose to a high of 6.5953 at one point in morning trade, the strongest level since Nov.29. At midday, the onshore spot yuan was changing hands at 6.5954 per dollar, 104 pips stronger than the previous late session close and 0.17 percent firmer than the midpoint. Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong said the gains in the yuan were due to seasonal factors. "It appears that the movement was year-end flow driven," Cheung said in a note. The yuan has been shackled in the past month or so by concerns about a slowdown in the Chinese economy and a signs of a stepped up campaign to defuse financial risks. Traders said they would also be focused on the outcome of the Central Economic Work Conference, which was set to finish on Wednesday. A proposed gross domestic product growth target would be endorsed by top leaders at the closed-door meeting, and then announced at China's annual congress in early 2018. The offshore yuan was trading at 6.5955 per dollar as of midday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.45, firmer than the previous day's 95.23. 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 6.747, 2.08 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0430 GMT:
Item Current Previous Change PBOC midpoint 6.6066 6.6098 0.05% Spot yuan 6.5954 6.6058 0.16% Divergence from -0.17%
Spot change YTD 5.33% Spot change since 2005 25.49%
Item Current Previous Change Thomson 95.45 95.23 0.2
Reuters/HKEX CNH index
Dollar index 93.443 93.441 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.
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.5955 0.00% * Offshore 6.747 -2.08%
*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 Shri Navaratnam)