Wires

Yuan steadies on trade gestures, rangebound ahead of long holiday

Noah Sin

HONG KONG, Sept 24 (Reuters) - China's yuan inched up on Tuesday as Beijing showed more goodwill ahead of high-level trade negotiations with Washington next month, but the currency largely moved within a tight range ahead of the week-long National Day holiday. A trade deal appeared elusive late last week after Chinese officials unexpectedly canceled a visit to farms in Montana and Nebraska and traders remain doubtful of a breakthrough as both sides still appear wide apart on some key issues. U.S. Treasury Secretary Steven Mnuchin, however, said on Monday Beijing had committed to buying agriculture from China. "We want them to buy agriculture. They have committed to buy agriculture. And they're doing that," he said in a public exchange with President Donald Trump, who said the United States should ship the products as fast as possible. The remarks came as Chinese importers bought about 10 boatloads of U.S. soybeans on Monday following deputy-level trade talks in Washington last week, two traders with direct knowledge of the deals told Reuters. A Bloomberg report, citing sources, saying China had granted several domestic firms new tariff waivers for U.S. soybean imports sent the Chinese currency higher in afternoon trade. The onshore yuan strengthened by 0.1% to 7.1116 per dollar by 0508 GMT, while the offshore yuan firmed 0.07% to 7.1053. Both were confined to a tight range earlier in the day. "It's a goodwill gesture to carrying on the trade talks," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. "Both sides have now confirmed the talks will go ahead. The biggest risk is they can't reach a partial deal in the talks." Despite the short-term boost, yuan traders are nevertheless bracing for uncertainty in the high-level trade talks that will involve Chinese Vice Premier Liu He, and which Mnuchin said will be held in two week's time. "The market actually thinks it's good news if they're not talking, because it's hard to gauge the direction of the negotiations," said a Shanghai-based trader with a foreign bank. "Should any bad news come out, the renminbi would fall." The People's Bank of China set the guidance rate at 7.0729 per dollar prior to market open, just a touch firmer than the previous fix of 7.0734. But it came in much firmer than Reuters' estimate of 7.0838 per dollar. The onshore yuan can trade 2% either side of this midpoint level, and the PBOC has often set it stronger than the market anticipates to anchor yuan expectations. "The renminbi should stay largely stable before the National Day holiday. We'll need to watch if the midpoint moves. If the midpoint doesn't move, then it's stuck," said second trader in Shanghai, who works for a foreign bank. Chinese financial markets will shut between Oct. 1 and 7 to mark the 70th anniversary of the People's Republic of China. The dollar index, which surged on the back of poor eurozone business activity data in the previous session, calmed and moved within a tight range on Tuesday, adding to the lack of action in currency markets. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 91.42, a touch firmer than the previous day's 91.38. 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 7.1672, 1.32% weaker the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 5:08AM GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 7.0729 7.0734 0.01%Spot yuan 7.1116 7.119 0.10%Divergence from 0.55%

midpoint*

Spot change YTD -3.36%Spot change since 2005 16.38%

revaluation

Key indexes:

Item Current Previous ChangeThomson 91.42 91.38 0.0

Reuters/HKEX CNH index

Dollar index 98.663 98.599 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 7.1053 0.09%*Offshore 7.1672 -1.32%

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. .

(Additional reporting by Jindong Zhang in Shanghai; Editing by Jacqueline Wong)