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China's yuan rises to strongest in over a year on firmer guidance

[SHANGHAI] China's yuan climbed to its strongest against the US dollar in more than a year on Monday, after the central bank raised its official guidance following a slide in the greenback.

The country's stock market also rallied on Monday morning, with Shanghai's benchmark index trading above the psychologically key 3,300-point mark for a second day, triggering some to call it the start of a bull market.

The People's Bank of China raised its official yuan midpoint to 6.6353 per US dollar, the strongest since Aug 19, 2016, reflecting broad weakness in the US currency in global markets.

Monday's midpoint was 226 pips or 0.34 per cent firmer than the previous fix of 6.6579 set on Friday.

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The strength in the midpoint followed losses in the dollar late on Friday after Federal Reserve Chair Janet Yellen made no reference to US monetary policy in her speech at the annual central bank conference in Jackson Hole, Wyoming, disappointing investors.

Spot yuan opened at 6.6415 per US dollar and was changing hands at 6.6416 by midday, 68 pips firmer than the previous late session close but 0.09 per cent weaker than the midpoint.

Traders said corporates scooped up the less expensive US dollar in morning trade.

"Dollar demand by companies has been strong recently," said a trader at an Asian bank in Shanghai.

"The spot yuan rate strengthened, but not as much as how the midpoint suggested," the trader added, noting heavy dollar buying by companies capped gains in the Chinese currency.

The Chinese currency rose by 0.3 per cent against the dollar last week, but lost 0.06 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 (CFETS). The index stood at 93.760 last Friday.

The CFETS publishes index figures on a weekly basis.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.75, weaker than the previous day's 94.88.

The global US dollar index fell to 92.519 from the previous close of 92.74.

Offshore yuan was trading 0.06 per cent firmer than the onshore spot at 6.6377 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 6.7855, 2.21 per cent weaker than the midpoint.

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