Wires

Yuan climbs to fresh 6-month peak as China economy shows resilience

SHANGHAI, Jan 17 (Reuters) - China's yuan advanced to a new six-month high against the dollar on Friday, after a slew of data pointed to resilience in China's economy in the final quarter of the year despite U.S. trade pressures and a slowdown at home. The Chinese currency is set for its biggest weekly gain since early October, underpinned by hopes of improving relations with the United States after a rocky year. The yuan strengthened after Beijing signed a long-awaited preliminary trade agreement with the Washington to ease trade tensions on Wednesday. Traders said fresh signs of stabilisation in the Chinese economy, especially a surprising acceleration in factory output, lent support for the currency on Friday. "The USD/CNH remains in a heavy stance, especially with the latest industrial production and retail data in-line to stronger than expected," Terence Wu, strategist at OCBC Bank in Singapore said in a note. Official data showed China's economic growth slowed to its weakest in nearly 30 years in 2019, but activity data, including industrial production, retail sales and xed-asset investment all came in above market expectations. The onshore spot yuan opened at 6.8800 per dollar and rose to a high of 6.8660 at one point, the strongest since July 11, 2019. As of midday, the spot yuan was changing hands at 6.8710, 90 pips firmer than the previous late session close. If the yuan finishes the domestic session at the midday level, it would have strengthened 0.7% to the dollar for the week, booking its fourth winning week in a row and the biggest weekly rise in more than three months. "Traders continue to dive into the yuan on improving domestic sentiment and with the U.S.-China relationship in an infrangible state of detente, we could hit 6.85 much sooner than expected," Stephen Innes, chief Asia market strategist at AxiTrader said in a note. The United States and China signed a Phase 1 trade deal on Wednesday that will roll back some tariffs and boost Chinese purchases of U.S. products, defusing an 18-month row between the world's two largest economies but leaving a number of sore spots unresolved. Prior to market opening on Friday, the People's Bank of China set the midpoint rate at 6.8878 per dollar, weaker than the previous fix of 6.8807. However, some onshore traders warned that the yuan could face some correction in the near term as interest in loading up on dollars from companies and households has emerged. A trader at a Chinese bank said their clients started to bargain hunt for cheaper dollars after recent strong gains in the yuan, while individuals have started to convert yuan to dollars for their overseas trips during the week-long Lunar New Year holiday, which starts next Friday. Such dollar demand could prevent the yuan from testing new highs. The global dollar index rose to 97.322 at midday from the previous close of 97.32. The offshore yuan was trading at 6.8718 per dollar as of midday.

The yuan market at 0328 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.8878 6.8807 -0.10%Spot yuan 6.871 6.88 0.13%Divergence from -0.24%

midpoint*

Spot change YTD 1.34%Spot change since 2005 20.46%

revaluation

Key indexes:

Item Current Previous ChangeThomson 93.67 93.38 0.3

Reuters/HKEX CNH index

Dollar index 97.322 97.32 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 6.8718 -0.01%*Offshore 6.9416 -0.78%

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)