China's yuan advances on US dollar to hit its strongest in 15.5 months

[SHANGHAI] China's yuan advanced further against the dollar on Monday to the strongest level in 15-1/2 months, thanks to a beefed-up central bank fixing and heavier corporate dollar sales.

The Chinese currency has strengthened against the greenback over the past few months, with the onshore spot rate rising 2.1 per cent to book its best month on record in August - a rare run for a currency that usually trades in a wafer-thin range.

Prior to market opening on Monday, the People's Bank of China raised its official yuan midpoint to 6.5668 per US dollar, the sixth straight gaining session and the strongest level since June 23, 2016.

The higher fix follows gains in the spot yuan rate on Friday, traders said, adding Monday's guidance largely matched their forecasts.

Monday's midpoint was 241 pips or 0.37 per cent firmer than the previous fix of 6.5909 set on Friday.

In the spot market, the yuan opened at 6.5555 per US dollar and rose to a high of 6.5476, the strongest level since May 23, 2016.

The spot yuan was changing hands at 6.5489 at midday, 107 pips firmer than the previous late session close and 0.27 per cent stronger than the midpoint.

A trader at an Asian bank in Shanghai said the onshore yuan trade continued "following the flow", meaning corporate dollar selling in morning trade was heavy enough to push the yuan higher.

Some market participants said they were concerned about short-term dollar volatility amid heightened tensions on the Korean peninsula.

North Korea said it tested an advanced hydrogen bomb for a long-range missile on Sunday, prompting the United States to warn of a "massive" military response if it or its allies were threatened.

The Chinese currency gained around 1.4 per cent against the US dollar last week, the best weekly performance since July 2015, when it was revalued and taken off a fixed dollar peg.

However, the yuan only rose 0.7 per cent on a trade-weighted basis against a basket of currencies of its trading partners, according to official data from the China Foreign Exchange Trade System (Cents). The index stood at 94.42 last Friday.

The Cents publishes the data on a weekly basis.

Separately, Yu Yongding, a scholar at the China Academy of Social Sciences and a former central bank adviser, told state media that China should use stable economic conditions to pursue exchange rate reforms that would allow the currency to float freely as soon as possible.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.19, firmer than the previous day's 95.77.

The global dollar index fell to 92.688 from the previous close at 92.814.

The offshore yuan was trading 0.01 per cent weaker than onshore spot at 6.5497 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 6.6875, 1.80 per cent weaker than the midpoint.

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

REUTERS