China's yuan leapt to a more than three-month high against the dollar on Monday, as the central bank guided the unit higher and exporters rushed to convert their dollar receipts into local currency. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1612 per dollar, 116 pips firmer than the previous fix of 7.1728. Monday's official guidance, the strongest since Aug. 11, was the biggest one-day strengthening in more than two months.
The fixing was also 708 pips stronger than a Reuters estimate of 7.2320, tracking the PBOC's pattern in recent months of firmer-than-expected guidance. In the spot market, the onshore yuan opened at 7.1950 per dollar and jumped to a high of 7.1413 at one point, the strongest since Aug. 4. By midday, it was changing hands at 7.1742, 393 pips firmer than the previous late session close. Its offshore counterpart followed the strengthening trend to hit a three-month high of 7.1730 per dollar before trading at 7.176 around midday.
The sudden strength in the yuan was in line with other Asian currencies tracking broad weakness in the greenback, which languished near an over two-month low against a basket of currencies, as some investors shifted attention to how soon the Federal Reserve could begin easing monetary conditions. "Some corporate clients were quite hesitant last week, but they decided to sell dollars for the yuan soon after the yuan strengthened past 7.2 per dollar today," said a trader at a Chinese bank. A second trader at a foreign bank said client queries for dollar conversions to yuan picked up in morning trade, as sentiment improved. "Exporter conversion of USD receivables into year-end and before Lunar New Year could press USD/CNY down tactically," analysts at Barclays said in a note.
"But without a sustained USD move lower or re-ignited market conviction on China growth or business confidence, the lower USD/CNY should create buy-on-dip opportunities for carry trades." Chinese exporters traditionally convert more of their FX receipts into the Chinese currency for various payments, including year-end bonus handouts, towards the end of the year. Such conversions support the yuan. Separately, China's decision to leave benchmark lending rates unchanged at a monthly fixing earlier had little impact on the yuan. The yuan market at 4:00AM GMT:
ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.1612 7.1728 0.16% Spot yuan 7.1742 7.2135 0.55% Divergence from 0.18% midpoint* Spot change YTD -3.82% Spot change since 2005 15.36% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 103.643 103.917 -0.3 *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 morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 7.176 -0.03% * Offshore 6.9925 2.41% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Shanghai Newsroom. Editing by Sam Holmes)