December 14, 2016 / 1:13 AM / 3 years ago

China's yuan firms as global dollar index retreats

HONG KONG (Reuters) - China’s yuan rose against the U.S. dollar on Thursday, as the global dollar index lost momentum after President-elect Donald Trump’s highly-anticipated news conference failed to spell out details on his promises to boost fiscal spending and cut taxes.

FILE PHOTO A portrait of former Chinese leader Mao Zedong on a yuan banknote is reflected in water droplets in this picture illustration taken in Taipei October 8, 2010. REUTERS/Nicky Loh/File Photo

The People’s Bank of China set the midpoint rate at 6.9141 per dollar prior to market open, firmer than the previous fix 6.9235.

The spot market opened at 6.9225 per dollar and was changing hands at 6.9117 at midday, 243 pips stronger than the previous late session close and 0.03 percent stronger than the midpoint.

The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day.

Traders say the yuan’s strength was mainly a reflection of overnight dollar weakness.

The dollar index, which tracks the U.S. currency against a basket of six major counterparts, was down 0.1 percent at 101.65. It had risen to a one-week high on Wednesday, ahead of Trump’s news conference.

“The yuan has been strong recently and I believe it will likely hover around the current level against the CFETS basket this year as the central bank is determined to keep the yuan stable,” said a trader at a Chinese bank in Shanghai.

Authorities in Beijing moved aggressively in the opening days of the new year to steady the currency to quash speculation that it was on a one-way depreciation trend.

With a 10 percent decline in CFETS index and 7.6 percent fall in the REER (BIS measure) since last August, a sizable portion of the yuan’s overvaluation has already been corrected, said Aidan Yao, senior emerging Asia economist at AXA Investment Managers.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.68, weaker than the previous day’s 96.09.

The offshore yuan was trading 0.29 percent stronger than the onshore spot at 6.8914 per dollar.

The overnight CNH borrowing rate was fixed at 2.69 percent on Thursday, after surging to more than 60 percent last week due to tight liquidity.

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 7.159, 3.42 percent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

Reporting by Michelle Chen; Editing by Jacqueline Wong

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