China's yuan firms on stronger fixing; dollar in doldrums

SHANGHAI: China's yuan strengthened on Friday, snapping three days of losses after the central bank set a firmer fixing for the currency's daily trading band, and as the dollar lingered near a two-and-a-half year low.

Before the market open on Friday, the People's Bank of China set the yuan's midpoint rate at 6.5405 per dollar, firmer than the previous fix of 6.5476.

Spot yuan opened at 6.5400 per dollar and firmed to 6.5395 by midday, 64 pips stronger than the late session close on Thursday. The offshore yuan strengthened to 6.5235 by midday.

Traders attributed the offshore yuan's premium of over its onshore counterpart to dollar demand by onshore corporates that is providing support for the dollar-yuan pair above the 6.5 level, particularly in an environment of geopolitical uncertainty - in Europe as well as between the US and China.

"We need to wait for the outcome of Brexit talks. The yuan will watch whether the dollar chooses a direction. There hasn't been much strength behind rises recently," said a trader at a Chinese bank.

China's yuan has also faced headwind recently from rising Sino-US tension as the administration of outgoing President Donald Trump seeks to cement hardline policies against Beijing.

On Thursday, the US Federal Communications Commission (FCC) said it had begun the process of revoking China Telecom's authorization to operate in the United States.

Also on Thursday, S&P Dow Jones Indices on Thursday became the second major index provider to remove some Chinese companies from its index products to comply with a Trump administration executive order.

The global dollar index fell to 90.642 from the previous close of 90.763, near a 31-month trough as investors bet on better returns in other currencies as the pandemic recovery takes hold.

Analysts and investors widely expect the yuan to continue rising in the medium term, helped by a weaker dollar and investors seeking higher yielding yuan investments.

"We're in a period where markets are very much focused on potential for global economic growth (and) volatility back at near the post pandemic lows.

That tends to cause those currencies that benefit from those carry trade flows to outperform as well," said Steven Dooley, APAC currency strategist at Western Union Business Solutions in Melbourne.