SHANGHAI, Nov 6 (Reuters) - The Chinese yuan took a breather on Friday after hitting a 28-month high against the U.S. dollar in the previous session, but analysts see it rallying further as Joe Biden inches toward victory in the U.S. presidential race. If Biden prevails over Donald Trump, markets hope for "less antagonistic U.S.-China trade relations and a rally in Chinese assets," DBS strategist Chang Wei Liang wrote. The onshore yuan changed hands at 6.6293 at midday, a bit softer than Thursday's late session close. Prior to the market open, the People's Bank of China set the midpoint rate at the strongest level since July 11, 2018. Continued yuan strength is likely, investors say, citing China's early recovery from the coronavirus pandemic, as well as Beijing's desire to attract more foreign capital. Chinese policymakers are close to setting an average annual economic growth target of around 5% for the next five years, policy sources told Reuters. "The constructive CNY narrative is intact given the combination of ongoing growth normalization, relatively high rate differentials, supportive current account flows and steps towards RMB internationalization," Barclays analysts said in a note on Friday. The view was echoed by Paras Anand, Asia Pacific CIO at Fidelity International. Anand, who predicts accelerating foreign inflows into Chinese bonds, said unlike elsewhere in the world, "China has chosen not to monetize the (pandemic) crisis, not to entertain at the same level of monetary stimulus." "As a result, China has a fixed income market that not only is offering attractive returns, but is also acting as a source of diversification for global investors." Meanwhile, the U.S. dollar remains one of the most expensive currencies in the world on a relative basis, Anand said, forecasting a long-cycle of depreciation of the greenback. The global dollar index fell to 92.63 from the previous close of 92.67. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.7755, 2.16 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The yuan market at 5:20AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.629 6.6895 0.91% Spot yuan 6.6288 6.61 -0.28% Divergence from 0.00% midpoint* Spot change YTD 5.04% Spot change since 2005 24.86% revaluation Key indexes: Item Current Previous Change Thomson 95.44 95.7 -0.3 Reuters/HKEX CNH index Dollar index 92.63 92.67 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 morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.618 0.16% * Offshore 6.7755 -2.16% 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 Samuel Shen and Andrew Galbraith; Editing by Kim Coghill)
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