Yuan higher as PBOC signals greater tolerance for gains

    SHANGHAI, Sept 16 (Reuters) - The yuan advanced on Wednesday
after firm central bank guidance indicated an increasing
tolerance for a stronger currency, although gains were pared as
investors trimmed risk exposure ahead of the Federal Reserve's
policy decision.
    Global markets have shifted their attention to the Fed's
meeting due later in the session for clues on the monetary
policy outlook after the world's largest economy adopted a more
accommodative approach to inflation.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.7825 per dollar, 397 pips
or 0.59% firmer than the previous fix of 6.8222. It was the
strongest guidance since May 9, 2019.
    The fixing marked the biggest one-day gain in percentage
terms since April 8 and largely matched market projections.
    "Policymakers' acceptance of RMB's strength should be
sufficient to push USD/CNH lower so long as it is fundamentally
and not speculatory driven," Stephen Innes, chief global markets
strategist at AxiCorp, said in a note.
    "The ultimate goal is still for a floating exchange regime
as China prepares to open up its financial market further and
internationalise its currency."
    In the spot market, onshore yuan opened at 6.7766
per dollar and rose to a high of 6.7674 at one point, its
strongest since May 8, 2019. By midday, it was changing hands at
6.7729, 89 pips firmer than the previous late session close.
    Rising long positions in the yuan supported the strength in
the local currency, traders said. That came as corporate clients
offloaded dollars to limit exchange losses after the spot price
rose past the key 6.8 per dollar level, once considered the 2020
ceiling for the Chinese currency. 
    But some traders said they have trimmed their short dollar
positions for their own proprietary accounts amid uncertainty
about the Fed. 
    "The RMB appreciation is in alignment with the China's
latest development roadmap," said Ken Cheung, chief Asian FX
strategist at Mizuho Bank.
    "The dual circulation development plan calls for digging up
the potential of China's enormous consumption market and cutting
its reliance on exports demand as well as the overseas
    Cheung said the PBOC has sufficient tools to counteract yuan
strength if continued appreciation creates policy concerns.
    Separately, Sino-U.S. tensions remain a key market focus.
The World Trade Organization found on Tuesday that the United
States breached global trading rules by imposing
multibillion-dollar tariffs in President Donald Trump's trade
war with China, a ruling that drew anger from Washington.

    The yuan market at 0404 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.7825   6.8222    0.59%
 Spot yuan          6.7729   6.7818    0.13%
 Divergence from    -0.14%             
 Spot change YTD                       2.81%
 Spot change since 2005                22.20%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         94.03       93.9      0.1
 CNH index                             
 Dollar index    93.042      93.122    -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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.772     0.01%
 Offshore              6.916     -1.93%
*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