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Yuan weakens as renewed virus fears buoy dollar

23 Sep 2020 / 14:00 H.

SHANGHAI: China's yuan weakened against the dollar on Wednesday as renewed global concern about a new wave of coronavirus cases and strong U.S. housing data lifted the greenback. A softer central bank fixing also weighed on the yuan. The People's Bank of China set the midpoint rate for its daily trading band at 6.7986 per dollar prior to market open, its weakest fixing in a week. Spot yuan opened at 6.7920 per dollar and was changing hands at 6.7959 at midday, 141 pips weaker than Tuesday's late session close. The currency has softened since touching 6.7501 to the dollar on Sept. 17, its strongest level since late April 2019. Nevertheless, a trader at a foreign bank said factors continue to support a firmer yuan. "It's hard to say where the bottom is for USD/CNY. Recently there's been a risk of retracement. But if you look at the basket, the yuan is still rising," said a trader at a foreign bank. The Thomson Reuters/HKEX Global CNY index, which tracks the onshore yuan against a basket of currencies on a daily basis, touched a high of 93.99 on Wednesday, near a more than five-month high touched on Sept. 17. The dollar strengthened on Wednesday, supported by data that showed U.S. home sales surged to their highest level in nearly 14 years in August, despite a warning by a prominent Federal Reserve official of the risk of a long, slow recovery if the U.S. Congress fails to pass additional stimulus. A second wave of coronavirus infections in Europe and Britain also boosted the global dollar index, which rose to 94.19 from the previous close of 93.975. Despite the yuan's weakness on Wednesday, UBS Wealth Management's chief investment office said that it had recently raised its year-end forecast for the yuan to 6.7 per dollar from 6.8, based on better-than-expected Chinese economic data, expectations of improving consumption and a largely stable dollar index. "Although the yuan is biased toward strengthening before the end of the year, the exchange rate is likely to oscillate between 6.65 and 6.95 in the next three months due to the U.S. election and the possibility of continued tensions between China and the U.S.," UBS said. Morgan Stanley has hiked the chance of China being added to one of the world's top government bond indexes later this week to 90% after the country made some additional improvements to its market practices. The actual inclusion in the World Government Bond Index (WGBI) will happen in September 2021 with a 20-month phase-in. Morgan Stanley estimates it could help funnel $60-$90 billion of investment money into China in the next few years and $3 trillion over the next decade. The yuan market at 4:17AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.7986 6.7872 -0.17% Spot yuan 6.7959 6.7818 -0.21% Divergence from -0.04% midpoint* Spot change YTD 2.46% Spot change since 2005 21.79% revaluation Key indexes: Item Current Previous Change Thomson 94.1 93.88 0.2 Reuters/HKEX CNH index Dollar index 94.19 93.975 0.2 *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 6.7985 -0.04% * Offshore 6.9504 -2.18% 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. -Reuters

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