July 30, 2020 / 4:46 AM / 4 days ago

Yuan inches up on Fed's dovish stance, but Sino-U.S. tensions limit gains

    SHANGHAI, July 30 (Reuters) - The yuan inched up against the
dollar on Thursday as the Federal Reserve maintained a dovish
policy stance amid accelerating U.S. coronavirus infections, but
gains in the Chinese currency were capped by simmering Sino-U.S.
tensions.
    The Fed left interest rate near zero at the end of its
two-day policy meeting and pledged to "do what we can, and for
as long as it takes" to limit damage caused by coronavirus shock
and support the economic recovery.
    "The assurance of USD availability resulted in notable moves
overnight and into Asia FX this morning as CNH is leading the
way higher for the rest of Asia currency complex," Stephen
Innes, chief global markets strategist at AxiCorp, said in a
note.
    Onshore spot yuan opened at 6.9935 per dollar and
rose as high as 6.9920 before changing hands at 6.9970 at
midday, 43 pips firmer than the previous late session close.
    Yuan traders said the Fed's bearish economic outlook weighed
on the dollar and supported non-dollar currencies, but
diplomatic ties between Beijing and Washington remained a big
market concern.
    "USD/CNH will likely fluctuate around the 7 level for now,
susceptible to U.S.-China relations," said Gao Qi, FX strategist
at Scotiabank.
    The U.S. military will help Japan monitor "unprecedented"
Chinese incursions around East China Sea islands controlled by
Tokyo but claimed by Beijing as Chinese boats prepare to begin
fishing in nearby waters, the commander of U.S. Forces Japan
said on Wednesday.
    A trader at a Chinese bank said some corporate demand for
dollars for use in dividend payments also wiped out some gains
in the yuan on Thursday morning.
    Chinese companies listed in Hong Kong usually make such
payments from May to September.
    Prior to the market open, the People's Bank of China (PBOC)
set the midpoint rate at 6.9902 per dollar, 67 pips
or 0.1% firmer than the previous fix of 6.9969. 
    The global dollar index rose to 93.378 at midday from
the previous close of 93.356. 
    The offshore yuan was trading at 6.9972 per dollar
by midday. 
    
    The yuan market at 0403 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9902   6.9969    0.10%
                                       
 Spot yuan          6.997    7.0013    0.06%
                                       
 Divergence from    0.10%              
 midpoint*                             
 Spot change YTD                       -0.48%
 Spot change since 2005                18.29%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.31       91.31     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.378      93.356    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    6.9972    0.00%
        *                        
 Offshore              7.129     -1.95%
 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
Richard Pullin)
  
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