Yuan rises to seven-month high, set for best week in six

[SHANGHAI] The yuan on Friday edged up to a new seven-month high before paring some gains at midday, thanks to broad US dollar weakness, and also looked set for its best week in six.

The US dollar was on the defensive against a basket of currencies after a rise in US jobless claims and a dip in Treasury yields dampened the appeal of holding the greenback.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint at a new seven-month high of 6.9107 per US dollar, 167 pips firmer than the previous fix of 6.9274.

The guidance rate, the strongest since Jan 23, was largely in line with market projections, which could signal that the authorities were comfortable with recent strength in the yuan, some traders said. The fixing was one pip firmer compared with Reuters' estimate of 6.9108.

Onshore yuan opened at 6.9090 per US dollar and rose to a high of 6.8960 at one point, the loftiest level since Jan 22. By midday, it was changing hands at 6.9100, 60 pips firmer than the previous late session close.

If the yuan finishes the late night session at the midday level, it would have gained 0.58 per cent to the US dollar for the week, the biggest weekly gain since mid-July.

Several traders said they noticed increasing reluctance to chase the yuan higher after it rose past 6.9 per US dollar in the morning session, prompting some profit taking.

Tensions between Beijing and Washington remained a risk, a trader at a foreign bank said.

The Trump administration on Thursday declined to acknowledge any plans to meet with China over the Phase One trade deal after the China's commerce ministry said bilateral talks would be held "in the coming days" to evaluate the agreement's progress.

Stephen Innes, chief global markets strategist at AxiCorp, said the yuan could strengthen to 6.85 to 6.87 per US dollar if broad dollar weakness persisted and if there was no major escalation in the Sino-US trade dispute.

"The yuan is benefitting from stock market inflows, gradually improving domestic economic conditions, a tinge of PBOC policy accommodation, and the overall weaker US dollar versus Asia narrative," he said in a note.

Chinese shares were up on Friday, with the blue-chip CSI 300 Index advancing 1.17 per cent in morning trade.

REUTERS