February 15, 2016 / 2:16 AM / 4 years ago

China's yuan hits strongest level in 2016 on weak dollar and firmer midpoint

SHANGHAI (Reuters) - China’s yuan firmed on Monday in its first day of trading after the long Lunar New Year holiday, buoyed by the dollar’s recent dollar and a stronger central bank midpoint.

A customer counts Chinese Yuan notes at a market in Beijing, August 12, 2015. REUTERS/Jason Lee - RTX1NZF6

The People's Bank of China (PBOC) set the midpoint rate CNY=SAEC at 6.5118 per dollar prior to market open, the highest fixing in over a month, or 0.3 percent firmer than the previous fix 6.5314.

The spot market CNY=CFXS opened at 6.5300 per dollar and hit an intraday high of 6.4988 in late morning trade.

It trimmed some gains and was changing hands at 6.5020 at midday, strengthening 1.1 percent from the previous close.

In an interview carried in the Chinese financial magazine Caixin over the weekend, PBOC Governor Zhou Xiaochuan said yuan exchange reform would help the market be more flexible in dealing with speculative forces betting on yuan depreciation.

Zhou commented there was no basis for the yuan to keep falling, and China would keep it stable versus a basket of currencies while allowing greater volatility against the U.S. dollar.

“The message from the governor really soothed the market sentiment,” said a trader at a local commercial bank.

“We expect the yuan’s value to stay in line with central bank’s fixing in the near future,” he said, adding that there was a bout of trading around 6.5300 early but the yuan then trended stronger due to continuous dollar sales.

But the latest data showed pressure on the economy persists.

China’s exports fell 11.2 percent in January from a year earlier and imports tumbled 18.8 percent, both far worse than expected, putting pressure on policymakers to take further action to put a floor under slowing activity.

A record trade surplus of $63.3 billion only underscored lingering weakness in demand at home and abroad.

“Today’s numbers hint that Chinese currency is still under pressure to weaken,” said Zhou Hao, a senior EM economist at Commerzbank AG.

“That said, recent strength in CNY/CNH is largely due to central bank’s effort to dampen the speculative positions.”

The offshore yuan CNH=D3 was trading 0.04 percent weaker than the onshore spot at 6.5045 per dollar.

The yuan edged up 0.3 percent against the euro EURCNY=CFXS at 7.2920. It weakened 1.5 percent against the Japanese yen JPYCNY=CFXS, hovering at 5.7040 to 100 yen.

Reporting by the Shanghai Newsroom; Editing by Kim Coghill

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