Yuan firms ahead of U.S. inflation, swaps touch 6-year highs


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SHANGHAI — China’s yuan edged higher

against the dollar on Tuesday ahead of U.S. inflation data,

while strong demand for the Chinese currency in the forward

market pushed the long end of the swap curve to the highest in

six years.

Markets are watching U.S. inflation trends for more clues on

when the Federal Reserve will start to tighten monetary policy.

Higher U.S. interest rates could trigger capital outflows from

emerging markets.

On Tuesday morning, the yuan traded in tight ranges holding


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above the psychological 6.45 per dollar threshold.

Prior to market opening, the People’s Bank of China (PBOC)

set the midpoint rate at 6.45 per dollar, 3 pips

weaker than the previous fix of 6.4497.

The onshore spot yuan opened at 6.4488 per dollar

and was changing hands at 6.4472 at midday, 53 pips firmer than

the previous late session close.

Traders said the yuan was likely to continue tracking the

dollar’s movements in the near term as comments from the Fed’s

meeting next week could provide more insight on when it would

begin to withdraw pandemic-era stimulus.

The Wall Street Journal reported on Friday that Fed

officials will seek an agreement to begin paring bond purchases

in November.

Meanwhile, signs of liquidity tightness in the interbank


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market also lent support, with benchmark one-year dollar/yuan

swaps jumping to a high of 1,840 points, the

loftiest since August 2015. Short-end swaps also moved upwards.

Traders said rises in the swap points come as banks need to

shore up their yuan positions towards the quarter-end and ahead

of the week-long National Day holiday starting on Oct. 1.

Investors will also be paying close attention to the PBOC’s

open market operations on Wednesday, when 600 billion yuan

($93.07 billion) worth in a medium-term lending facility is set

to expire.

“Another 50 bp reserve requirment ratio (RRR) cut will

likely be delivered by the Chinese central bank in the second

half, possibly around the October National Day holiday, to keep


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liquidity at a reasonably sufficient level,” said Gao Qi, FX

strategist at Scotiabank.

However, traders added that some major state-owned banks

were seen very actively swapping dollars for yuan in recent


China’s major state banks often act as agents for the

central bank in currency markets, but they also trade on their

own behalf.

By midday, the global dollar index fell to 92.598

from the previous close of 92.626, while the offshore yuan

was trading at 6.4448 per dollar.

The yuan market at 0400 GMT:


Item Current Previous Change

PBOC midpoint 6.45 6.4497 0.00%

Spot yuan 6.4472 6.4525 0.08%

Divergence from -0.04%


Spot change YTD 1.26%

Spot change since 2005 28.37%



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Key indexes:

Item Current Previous Change

Thomson 98.99 99.04 -0.1


CNH index

Dollar index 92.598 92.626 0.0

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2% from official midpoint rate it sets each



Instrument Current Difference

from onshore

Offshore spot yuan 6.4448 0.04%


Offshore 6.6293 -2.70%




*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.


($1 = 6.4467 Chinese yuan)

(Reporting by Winni Zhou and Andrew Galbraith; Editing by

Jacqueline Wong)


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