SHANGHAI, Oct 26 (Reuters) - The yuan was steady on Monday as a worldwide surge in COVID-19 cases and a still-elusive U.S. stimulus package boosted risk aversion and supported the dollar, but analysts and traders expect China's currency to keep building on its solid rally. Traders said concerns around the forthcoming U.S. election added to the market's cautious mood at the start of the week. "We'll see the results of the U.S. election next week. Although (Democratic presidential candidate) Joe Biden is favoured, there's still uncertainty," said a trader at a foreign bank. "The market is relatively cautious, and the yuan will likely be range-bound in the near term." Before the start of trade, the People's Bank of China set the midpoint of the yuan's daily trading band at 6.6725 per dollar, slightly weaker than the previous fix of 6.6703. The spot market opened at 6.6850 per dollar and was changing hands at 6.6859 at midday, just five pips stronger than Friday's late session close. The offshore yuan was weaker at 6.6771 per dollar, and the global dollar index rose to 92.924 from the previous close of 92.799. Analysts said the yuan, which has rallied over 7% since May, was likely to resume its rise, supported by China's strong recovery from the coronavirus shock and relatively high interest rates. PBOC Governor Yi Gang said on Saturday that China would seek to improve the flexibility of the yuan, following earlier comments that the yuan's exchange rate should be decided by market forces. "Since early August, the renminbi has appreciated significantly against its basket (i.e. in trade-weighted terms) while the dollar has been broadly side-lined, suggesting the trigger is now CNY strength rather than US$ weakness," Louis Kuijs, head of Asia economics at Oxford Economics said in a note. While policymakers are not keen to see overly fast appreciation of the yuan, Yi Gang's comments show "the central bank is relaxed about the prospect of further appreciation," Kuijs said. "We expect the currency to end 2020 at around US$/CNY6.6 and reach around 6.5 in end-2021," said Kuijs. The yuan market at 4:14AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.6725 6.6703 -0.03% Spot yuan 6.6859 6.6864 0.01% Divergence from 0.20% midpoint* Spot change YTD 4.15% Spot change since 2005 23.79% revaluation Key indexes: Item Current Previous Change Thomson 95.01 95.27 -0.3 Reuters/HKEX CNH index Dollar index 92.924 92.799 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 6.6771 0.13% * Offshore 6.845 -2.52% 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 Andrew Galbraith in Shanghai and Xiao Han in Beijing Editing by Shri Navaratnam)
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