Yuan set for third monthly gain - albeit a tiny one - on US-China trade truce
By Jiaxing Li
HONG KONG, Oct 31 (Reuters) - The yuan on Friday morning looked poised to mark a third consecutive monthly gain, albeit by a slim margin of 0.1%, with the previous day's trade truce between the U.S. and China underpinning investor sentiment.
The Chinese currency CNY=CFXS retreated on Thursday from a near one-year high against the dollar to be little changed on Friday at 7.1096 to the dollar by 0309 GMT.
Its offshore counterpart traded at 7.1111 yuan per dollar CNH=, down about 0.01% in Asian trade.
Concerns over worsening trade tension eased after U.S. President Donald Trump said on Thursday he had agreed with President Xi Jinping to trim tariffs on China in exchange for Beijing cracking down on the illicit fentanyl trade, resuming U.S. soybean purchases and keeping rare earths exports flowing.
The yuan is now up about to 2.7% for the year to date.
"A series of recent catalysts have all accelerated the yuan's revaluation" including easing trade tensions and narrowing U.S.-China interest rate differentials, Huatai analysts said in a note to clients.
The yuan is now showing "independent momentum" compared with other Asian currencies, no longer relying solely on dollar weakness but returning from undervaluation to a "reasonable" range, they added.
Goldman Sachs noted that heightened U.S.-China tensions in recent years and the desire to reduce China's vulnerability to potential U.S. financial sanctions has spurred Beijing to promote the yuan's internationalization, which should also supports its performance.
They added this trend "is likely to accelerate meaningfully in the coming years,", anticipating the USD/CNY exchange rate will fall to 6.70 by 2027.
Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC at 7.0880 per dollar, slightly weaker than the previous level and 291 pips firmer than a Reuters' estimate.
The spot yuan is allowed to trade 2% either side of the fixed midpoint each day and based on Friday's official guidance, it can drop as far as 7.2298.
The dollar's six-currency index =USD held its ground in early Asian trade on Friday after reaching a three-month high.
Key onshore vs offshore levels:
Overnight dollar/yuan swap onshore -12.50 pips vs. offshore -12.50
Three-month SHIBOR SHIBOR= 1.6 % vs. 3-month CNH HIBOR 1.7 %
LEVELS AT 03:08 GMT GMT
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan CNY=CFXS | 7.1096 | 0.02 | 2.67 | 7.1081 | 7.1118 |
Offshore yuan spot CNH=D3 | 7.1108 | 0.01 | 3.17 | 7.1087 | 7.113 |
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