Wires

Yuan climbs to 5-month high as Middle East tensions calm

SHANGHAI, Jan 9 (Reuters) - China's yuan edged up to a five-month high on Thursday, extending a recent strong run, as tensions in the Middle East ebbed. U.S. President Donald Trump on Wednesday tempered days of angry rhetoric and suggested Iran was "standing down" after it fired missiles at U.S. forces in Iraq overnight, as both sides looked to defuse a crisis over the U.S. killing of an Iranian general. The yuan opened at 6.9312 per dollar and rose to a high of 6.9252, the strongest since Aug. 1. The currency was changing hands at 6.9285 by midday, 171 pips firmer than the previous late session close. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.9497 per dollar, 47 pips weaker than the previous fix of 6.9450. With Mideast tensions easing, investors shifted their focus back to the health of China's economy and the upcoming signing of a Sino-U.S. trade deal scheduled for mid-January. Market expectations of a recovery in the world's second-largest economy have gradually improved, providing support for the yuan, said Wang Jianhui, chief economist at Capital Securities. China's consumer inflation steadied while factory-gate prices fell at a slower pace in December, giving Beijing room to stay the course on monetary easing as economic growth cools.

Although January consumer inflation is likely to accelerate due to the Lunar New Year effect, the increase is becoming much less of a constraint on PBOC policy, AxiTrader market strategist Stephen Innes noted in a report. Ahead of money and loan data due soon, a Reuters poll has forecast that new bank loans in China likely fell in December but lending for all of 2019 still set a record, helped by the central bank encouraging more lending to support the economy.

Capital Securities' Wang also noted capital inflows through equity investment amid a weakening trend of capital outflows, which he said has a more direct positive impact on the yuan. Official data showed northbound flows into China's onshore equities market via the Stock Connect linking Hong Kong and the mainland hit a record high of just over 350 billion yuan ($50.52 billion) for the whole of 2019 and remained robust into 2020. The global dollar index fell to 97.292 from the previous close of 97.299. The offshore yuan was trading at 6.927 per dollar as of midday.

The yuan market at 4:32AM GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.9497 6.945 -0.07%Spot yuan 6.9289 6.9456 0.24%Divergence from -0.30%

midpoint*

Spot change YTD -0.81%Spot change since 2005 19.45%

revaluation

Key indexes:

Item Current Previous ChangeThomson 92.87 92.67 0.2

Reuters/HKEX CNH index

Dollar index 97.292 97.299 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

from onshore

Offshore spot yuan 6.927 0.03%*Offshore 6.9993 -0.71%

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. .

($1 = 6.9280 Chinese yuan renminbi)

(Reporting by Luoyan Liu and Andrew Galbraith; Editing by Jacqueline Wong)