China's yuan rises to 2-week high on stronger fix, corp US dollar sales

[SHANGHAI] China's yuan rose against the dollar to the highest level in two weeks on Monday, underpinned by a firmer official yuan midpoint, pullback in US bond yields and renewed corporate sales of the greenback.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3378 per US dollar, 104 pips or 0.16 per cent firmer than the previous fix of 6.3482 on Friday.

In the spot market, the onshore yuan opened at 6.3367 per US dollar and rose to a high of 6.3160 at one point in morning trade, the strongest level since Feb 12.

As of midday, the onshore spot yuan was changing hands at 6.3180, 199 pips firmer than the previous late session close and 0.31 per cent stronger than the midpoint.

The market was very active, traders said, with volume rebounding to US$11.053 billion as of midday, compared with the full-day volume of US$8.210 billion last Friday.

A trader at a foreign bank in Shanghai said the US dollar was under renewed selling pressure in the domestic market, though he expects the yuan to remain range bound between 6.31 to 6.35 per US dollar.

Some market participants said seasonal dollar demand from households has faded, meaning the Chinese unit would likely come under greater influence from the greenback's broad global movements over the near term.

The US dollar came under some pressure in the Asian day on sagging US treasury yields, but traders were reluctant to stake out big positions ahead of Federal Reserve chairman Jerome Powell's first congressional testimony due on Tuesday.

The focus will be on any hints on the future pace of monetary tightening in the United States, an issue that has kept financial markets on edge in the past month or so.

Another factor on the radar of traders is the appointment of the next governor of China's central bank.

"We expect the USD/CNY to consolidate further ahead of China's key political reshuffles as well as appointment of new PBOC head," Tommy Xie, head of Greater China research at OCBC Bank in Singapore wrote in a note on Monday.

Reuters reported last Friday that Liu He, a Harvard-trained economist who is a trusted confidant of Chinese President Xi Jinping, has emerged as the front runner to be the next governor of the PBOC.

The Chinese currency edged up 0.1 per cent versus the greenback last week, but on a trade-weighted basis fell 0.33 per cent against the basket of currencies of its trading partners, according to official data from the CFETS.

The index, published on a weekly basis, stood at 95.8 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 97.12, firmer than the previous day's 97.03.

The global dollar index fell to 89.745 from the previous close of 89.883.

The offshore yuan was trading 0.05 per cent firmer than the onshore spot at 6.3149 per US 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 6.444, 1.65 per cent weaker than the midpoint.

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

REUTERS