China's yuan inches higher as money market liquidity tightens

       SHANGHAI, Feb 9 (Reuters) - China's yuan inched higher
against the dollar on Thursday, supported by signs of tightness
in money markets and expectations that data will show robust
credit growth.
        Prior to market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.7905 per dollar,
153 pips or 0.23% weaker than the previous fix of 6.7752. 
    In the spot market, the onshore yuan opened at
6.7922 per dollar and was changing hands at 6.7904 at midday, 36
pips firmer than the previous late session close.
    China's short-term money rates remained elevated on
Thursday. The volume-weighted average rate of the overnight repo
 continued to hover at the highest level in two
years, despite a generous injection of funds by the central bank
to offset hefty maturing reverse repurchase agreements.
    Traders and analysts attributed the upward pressure on cash
rates to higher credit demand, which has sucked money out of the
banking system.
    A Reuters poll suggested that yuan loans extended by Chinese
banks likely surged to a record high in January as the central
bank moved to shore up growth in the world's second-biggest
economy following a lifting of pandemic controls.
    The data is expected to be released sometime between Feb. 9
to Feb. 15.
    "The increase is likely above and beyond what could have
been caused by the usual post-holiday effect," said Tommy Wu,
senior economist at Commerzbank, referring to the week-long
Lunar New Year holidays that wrapped up at the end of last
    "We would argue that it could be indicative of stronger loan
demand. This will in fact be a positive sign of the anticipated
economic recovery is underway."
    Gradual improvements in domestic economy and prospects for a
strong rebound has reflected in the yuan's appreciation at the
start of this year, analysts at financial market department of
China Construction Bank said in a note.
    They expected the yuan to face resistance at around its
200-day moving average of 6.86 per dollar and have strong
support at 6.7 this month.
    The Chinese yuan has gained 1.6% so far this year, reversing
much of losses in 2022, when saw the worst annual performance in
28 years.
    Investors were cautiously testing highs in the yuan amid
uncertainty around the U.S. monetary tightening outlook. Markets
will focus on the next week's U.S. inflation data for more
clues, traders said.
    By midday, the global dollar index fell to 103.353
from the previous close of 103.409, while the offshore yuan
 was trading at 6.795 per dollar. 
    The one-year forward value for the offshore yuan
traded at 6.6377 per dollar, indicating a roughly 2.37%
appreciation within 12 months.
    The yuan market at 3:18AM GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.7905   6.7752    -0.23%
 Spot yuan          6.7904   6.794     0.05%
 Divergence from    0.00%              
 Spot change YTD                       1.61%
 Spot change since 2005                21.89%
    Key indexes:
 Item            Current     Previous  Change
 Dollar index    103.353     103.409   -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% from official midpoint rate it sets each
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.795     -0.07%
 Offshore              6.6432    2.22%
 *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 Brenda Goh; Editing by Simon