Yuan hits 3-week high, swings wildly on trade headlines

SHANGHAI, Oct 10 (Reuters) - China's yuan hit a three-week high before paring some gains in a volatile session early on Thursday, as traders pounced on various conflicting headlines about the state of play in Sino-U.S. trade talks. The offshore yuan was yanked lower before mainland markets opened after the South China Morning Post (SCMP) reported no progress at deputy-level trade talks and that the Chinese delegation planned to leave Washington a day early. Onshore spot yuan later jumped after Bloomberg reported that a previously agreed currency pact could be part of a deal suspending further tariff hikes. Gains were also supported by a New York Times report saying that Washington would soon issue licences allowing some U.S. firms to supply non-sensitive goods to China's Huawei

Technologies .

"There was so much news this morning with mixed signals," said a trader at a Chinese bank, suggesting the headlines could potentially point to different outcomes for the trade talks and triggered swings in the Chinese currency. Top-level officials from the world's two largest economies are set to meet in Washington on Thursday and Friday after deputy-level talks earlier this week. Markets have been anxiously tracking headlines for any hints of a breakthrough in Sino-U.S. talks to end a more than year-long trade war. Prior to market opening on Thursday, the People's Bank of China (PBOC) set the midpoint rate at 7.0730 per dollar, 2 pips weaker than the previous fix of 7.0728. Spot yuan opened at 7.1209 per dollar and climbed to a high of 7.1 at one point, the strongest since Sept. 20. As of midday, the onshore spot yuan was changing hands at 7.1142, 173 pips firmer than the previous late session close. A second trader at a Chinese bank said the yuan was unlikely to breach the key 7.1 per dollar level before anything official emerges from the bilateral trade discussions. Several traders said the market had been "very bearish" in past weeks, which caused news headlines on any progress in trade talks to lead to spikes in the yuan. FX strategists at DBS, however, said prospects for a trade deal remained dim. "The U.S. has previously stressed that it wants a comprehensive trade deal covering a range of issues including IP protection and market access, which remain key points of contention," they said in a note on Thursday. The global dollar index fell to 98.994 at midday from the previous close of 99.118. The offshore yuan was trading at 7.1156 per dollar as of midday.

The yuan market at 0357 GMT:


Item Current Previous ChangePBOC midpoint 7.073 7.0728 0.00%Spot yuan 7.1142 7.1315 0.24%Divergence from 0.58%


Spot change YTD -3.39%Spot change since 2005 16.34%


Key indexes:

Item Current Previous ChangeThomson 91.52 91.14 0.4

Reuters/HKEX CNH index

Dollar index 98.994 99.118 -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 7.1156 -0.02%*Offshore 7.167 -1.31%

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 Andrew Galbraith Editing by Jacqueline Wong)