Wires

Yuan strengthens to a 5-mth high ahead of signing of China-U.S. trade deal

SHANGHAI, Jan 13 (Reuters) - China's yuan made five-month highs on Monday amid heavy demand ahead of the signing later this week of a trade deal with the United States that includes clauses against competitive devaluations. Seasonal dollar-selling by Chinese companies needing to make yuan payments ahead of the Lunar New Year holiday also helped fuel the yuan's rise, traders say. The yuan rose 0.2% against the greenback to 6.9011 at midday, after China's central bank set the strongest midpoint since August 5, 2019. The currency has gained roughly 2% since early December. Traders said they saw few signs of People's Bank of China intervention to curb the yuan's gains. The PBOC vowed on Jan. 5 to let market forces "play a determinant role" in exchange rates in 2020. On Jan. 15, President Donald Trump and Chinese Premier Liu He are scheduled to meet in Washington to sign a Phase I trade deal to ease the 18-month trade war. The agreement will include clauses that seek to prevent China from devaluing the yuan to "unfairly compete against U.S. exporters," the U.S. government has said. Trump labeled China a currency manipulator last August, after PBOC allowed the yuan to weaken past the key 7-per-dollar level for the first time in more than a decade. "The U.S. hopes to see the yuan strengthen and China wants to see a stable currency that doesn't depreciate too much, said Ding Jianping, professor at the Shanghai University of Finance and Economics. Therefore, the yuan's recovery from last year's excessive fall "chimes in easily with both sides." Xie Dongming, analyst at OCBC Bank, said an expected decline in the dollar index this year, and continuous foreign inflows into China's capital markets could help push the yuan up further to 6.7-6.8 per dollar this year. A Reuters poll of FX strategists published last Friday, however, predicted the yuan will still be buffeted over the coming year as U.S.-China trade relations are expected to remain rocky despite recent hopes for some resolution. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.13, firmer than the previous day's 92.91. The global dollar index fell to 97.35 from the previous close of 97.356. The offshore yuan was trading 0.02 percent away from the onshore spot at 6.8995 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 6.9697, 0.62 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 3:54AM GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.9263 6.9351 0.13%Spot yuan 6.9011 6.9191 0.26%Divergence from -0.36%

midpoint*

Spot change YTD 0.90%Spot change since 2005 19.93%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.13 92.91 0.2

Reuters/HKEX CNH index

Dollar index 97.35 97.356 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 6.8995 0.02%*Offshore 6.9697 -0.62%

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 Samuel Shen and Andrew Galbraith; Editing by Simon Cameron-Moore)