Yuan closes domestic trade at 4-1/2-month high, set for best month in nine

HONG KONG: The yuan finished the domestic session at a 4-1/2-month high against the dollar on Friday and looked set for its best month in nine, as China's economy and financial markets showed further signs of recovery.

The onshore yuan ended its domestic trading session at 6.9794 per dollar, its strongest closing level since March 11.

The offshore yuan stood at 6.9838 per dollar around 0841 GMT, up 0.25pc on the day.

If the onshore yuan retains its entire gain of 1.23pc to the dollar at the late night close, it will book its best monthly rise since last October.

The Chinese currency has been underpinned by weakness in the dollar, having its worst month in a decade on economic woes in the United States as a surge in coronavirus cases threatens to disrupt economic activity.

Investment flows into Chinese stocks and bonds in July also aided the yuan, said Khiem Do, head of Greater China investments at Barings.

"This is because Asia, led by China, is showing stronger and more sustainable growth compared with other regions, despite some spikes in the second and third waves of COVID-19 virus."

Chinese stocks posted the biggest monthly percentage rise since February last year.

In another sign of rebound from the coronavirus shutdowns, China's factories stepped up activity in July for a fifth straight month.

But policymakers are not taking their feet off the pedal, vowing on Thursday to keep policy supportive in the second half amid a "severe and complex" economic situation.

However, forex demand from overseas-listed Chinese companies for dividend payments and brewing Sino-US tensions capped the yuan's rise against the US dollar, traders said.

The yuan, however, fell against other currencies, which also gained on the greenback's woes.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies, traded at 91.06, its lowest level since last October.

The People's Bank of China set the midpoint rate at 6.9848 prior to market open, softer than Reuters' estimate of 6.9781.