China's yuan firms after c.bank lifts fixing; Xi's stay at helm in focus

SHANGHAI, Feb 27 (Reuters) - China's yuan advanced further against the dollar on Tuesday, yet again helped by the usual combination of a higher official midpoint and corporate sales of the greenback. Some market watchers attributed the stronger yuan to a proposal by the China's ruling Communist Party to remove a constitutional clause limiting presidential service to just two terms in office. "Predictably the RMB traders have embraced the Xi's news as the announcement removes any political uncertainty of Xi's successor, and provides a stable political scrim," Stephen Innes, head of trading for Asia Pacific at OANDA, wrote in a note to clients. "But it also guarantees that deeper market reforms remain a priority as to does the Belt and Road initiative." The U.S. currency was on the backfoot as investors awaited a slew of economic data this week and Federal Reserve Chairman Jerome Powell's testimony due later in the global session.

Prior to market opening, the People's Bank of China (PBOC) raised its official yuan midpoint the most in nearly one month to 6.3146 per dollar, reflecting a stronger spot yuan performance from a day earlier. The official yuan midpoint was 232 pips, or 0.37 percent, firmer than the previous fix of 6.3378 on Monday. Tuesday's official guidance rate was the strongest since Feb.12, while the move was the biggest in percentage terms since Feb.1. That supported the onshore yuan, which opened at 6.3088 per dollar and rose to a high of 6.2936 at one point in morning trade, its best level since Feb.12. Market participants said the spot yuan continued to face some resistance around 6.3. As of midday, the onshore spot yuan was changing hands at 6.3062, 41 pips firmer than the previous late session close and 0.13 percent stronger than the midpoint. Trading was active for the second day. Half-day trading volume surged to $10.825 billion, compared with Monday's full-day volume of $22.716 billion, the highest since Dec.20, 2017. Corporate dollar selling once again provided strong support for the yuan. The dollar index, a gauge that measures the unit's strength against six other major currencies, fell to 89.797 as of midday from the previous close of 89.853. Separately, official data showed on Monday that China's commercial banks sold a net $900 million of foreign exchange in January, compared with a net purchase of $6.0 billion in December. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.38, firmer than the previous day's 97.19. The offshore yuan was trading 0.12 percent stronger than the onshore spot at 6.2987 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 6.428, 1.76 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0410 GMT:


Item Current Previous Change PBOC midpoint 6.3146 6.3378 0.37% Spot yuan 6.3062 6.3103 0.07% Divergence from -0.13%


Spot change YTD 3.18% Spot change since 2005 31.24%


Key indexes:

Item Current Previous Change Thomson 97.38 97.19 0.2

Reuters/HKEX CNH index

Dollar index 89.797 89.853 -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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.2987 0.12% * Offshore 6.428 -1.76%

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 Shri Navaratnam)