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China's yuan pauses but expected to resume rally on Biden bets

    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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