Yuan pauses rally on heightened risk aversion, but more upside seen

    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
    "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
    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
    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
    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: 
 Item               Current  Previous  Change
 PBOC midpoint      6.6725   6.6703    -0.03%
 Spot yuan          6.6859   6.6864    0.01%
 Divergence from    0.20%              
 Spot change YTD                       4.15%
 Spot change since 2005                23.79%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         95.01       95.27     -0.3
 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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.6771    0.13%
 Offshore              6.845     -2.52%
*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
Editing by Shri Navaratnam)