December 25, 2017 / 5:06 AM / 6 months ago

Yuan firms after midpoint fixed at more than three-month high, trading light

SHANGHAI (Reuters) - China’s yuan firmed against the U.S. dollar in light trading on Monday after the central bank set its official midpoint at the strongest level in over three months.

Chinese 100 yuan banknotes are seen in this picture illustration taken in Beijing July 11, 2013. REUTERS/Jason Lee

Prior to market opening, the People’s Bank of China set its official yuan midpoint at 6.5683 per dollar, reflecting solid spot yuan performance on Friday.

Monday’s official midpoint, 138 pips or 0.21 percent firmer than Friday’s fix of 6.5821 per dollar, was the strongest since Sept. 20.

In the spot market, the onshore yuan opened at 6.5745 per dollar and rose to 6.5565 at one point.

As of midday, the onshore spot yuan gave back some of its gains, changing hands at 6.5622, 143 pips firmer than the previous late session close and 0.09 percent stronger than the midpoint.

Traders said recent strength in the Chinese currency was largely supported by a weaker dollar, but when the spot yuan strengthened to approach 6.55 , buying interest in the greenback emerged.

A foreign exchange analyst at a Chinese bank said the market believes that the yuan at 6.55 would be an overshoot for the Chinese currency.

Overall trading was very thin on Monday, when many overseas markets were closed for Christmas. The dollar was little changed against its major trading partners, with the global dollar index at 93.338 from the previous close of 93.347.

The yuan’s daily trading volume stood at $6.918 billion at midday, compared with full-day volume of $18.359 billion on Friday.

Recent advances have pushed the yuan’s year-to-date gains to around 5.9 percent against the dollar. It declined roughly 6.5 percent in 2016, the worst annual performance since 1994.

The yuan strengthened around 0.48 percent against the dollar last week, but on a trade-weighted basis it edged up about 0.22 percent against a basket of currencies of trading partners, according to official data from the China Foreign Exchange Trade System (CFETS).

The index, published on a weekly basis, stood at 94.66 on Friday.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.76, firmer than the previous day’s 95.72.

In very thin trading, the offshore yuan was 0.05 percent stronger than the onshore spot at 6.559 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 6.7115, 2.13 percent weaker than the midpoint.

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

The yuan market at 0408 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.5683 6.5821 0.21%

Spot yuan 6.5622 6.5765 0.22%

Divergence from -0.09%

midpoint*

Spot change YTD 5.86%

Spot change since 2005 26.12%

revaluation

Key indexes:

Item Current Previous Change

Thomson 95.76 95.72 0.0

Reuters/HKEX

CNH index

Dollar index 93.338 93.347 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 * 6.559 0.05%

Offshore 6.7115 -2.13%

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 Brenda Goh; Editing by Richard Borsuk

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