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Yuan advances after China joins key bond index

    SHANGHAI, Sept 25 (Reuters) - The yuan strengthened against
the dollar on Friday as China's inclusion in a key global bond
index bolstered expectations of a significant increase in
capital inflows into the country.
    Investors cheered FTSE Russell's decision on Thursday to add
Chinese government bonds (CGBs) to its flagship World Government
Bond Index (WGBI) in 2021.
    Rising expectations of steady long-term foreign capital
inflows into the world's second-largest economy pushed yuan
forwards to their highest in nearly three years.

    Spot yuan also advanced with the onshore currency
opening at 6.8100 per dollar and changing hands at 6.8170 at
midday, 105 pips firmer than the previous late session close.
    However, the yuan remains on course for its biggest weekly
loss in six months as officials and market watchers grow wary of
the currency's recent rapid gains.    
    "We remain bullish on CNY over the medium term, driven by a
strong rebound on growth, robust export outlook, wide rate
differentials, a muted counter-cyclical factor and attractive
carry-to-vol ratio for CNY," Goldman Sachs said in a note on
Friday. 
    "However, given how much CNY has rallied recently, we would
not be surprised to see some correction in the near term."
    The yuan has gained more than 5% against the dollar since
late May, and is at its strongest level since mid-2019.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.8121 per dollar, 93 pips
weaker than the previous fix of 6.8028. 
    The global dollar index rose to 94.359 at midday,
when the offshore yuan was trading at 6.8271 per
dollar. 


    The yuan market at 0409 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.8121   6.8028    -0.14%
                                       
 Spot yuan          6.817    6.8275    0.15%
                                       
 Divergence from    0.07%              
 midpoint*                             
 Spot change YTD                       2.14%
 Spot change since 2005                21.41%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         94.06       93.96     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    94.359      94.308    0.1
 
    
    
*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    6.8271    -0.15%
        *                        
 Offshore              6.9821    -2.43%
 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 Winni Zhou and Andrew Galbraith; Editing by Sam
Holmes)
  
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