October 10, 2019 / 5:26 AM / 14 days ago

Yuan hits 3-week high, swings wildly on trade headlines

    SHANGHAI, Oct 10 (Reuters) - China's yuan hit a three-week
high before paring some gains in a volatile session early on
Thursday, as traders pounced on various conflicting headlines
about the state of play in Sino-U.S. trade talks.
    The offshore yuan was yanked lower before mainland markets
opened after the South China Morning Post (SCMP) reported no
progress at deputy-level trade talks and that the Chinese
delegation planned to leave Washington a day early.
    Onshore spot yuan later jumped after Bloomberg
reported that a previously agreed currency pact could be part of
a deal suspending further tariff hikes.
    Gains were also supported by a New York Times report saying
that Washington would soon issue licences allowing some U.S.
firms to supply non-sensitive goods to China's Huawei
Technologies         .
    "There was so much news this morning with mixed signals,"
said a trader at a Chinese bank, suggesting the headlines could
potentially point to different outcomes for the trade talks and
triggered swings in the Chinese currency.
    Top-level officials from the world's two largest economies
are set to meet in Washington on Thursday and Friday after
deputy-level talks earlier this week. Markets have been
anxiously tracking headlines for any hints of a breakthrough in
Sino-U.S. talks to end a more than year-long trade war.
    Prior to market opening on Thursday, the People's Bank of
China (PBOC) set the midpoint rate at 7.0730 per
dollar, 2 pips weaker than the previous fix of 7.0728. 
    Spot yuan opened at 7.1209 per dollar and climbed to a high
of 7.1 at one point, the strongest since Sept. 20.
    As of midday, the onshore spot yuan was changing hands at
7.1142, 173 pips firmer than the previous late session close.
    A second trader at a Chinese bank said the yuan was unlikely
to breach the key 7.1 per dollar level before anything official
emerges from the bilateral trade discussions.
    Several traders said the market had been "very bearish" in
past weeks, which caused news headlines on any progress in trade
talks to lead to spikes in the yuan.
    FX strategists at DBS, however, said prospects for a trade
deal remained dim.
    "The U.S. has previously stressed that it wants a
comprehensive trade deal covering a range of issues including IP
protection and market access, which remain key points of
contention," they said in a note on Thursday.
    The global dollar index fell to 98.994 at midday from
the previous close of 99.118. 
    The offshore yuan was trading at 7.1156 per dollar
as of midday. 
    
    The yuan market at 0357 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      7.073    7.0728    0.00%
                                       
 Spot yuan          7.1142   7.1315    0.24%
                                       
 Divergence from    0.58%              
 midpoint*                             
 Spot change YTD                       -3.39%
 Spot change since 2005                16.34%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.52       91.14     0.4
 Reuters/HKEX                          
 CNH index                             
 Dollar index    98.994      99.118    -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 percent from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    7.1156    -0.02%
        *                        
 Offshore              7.167     -1.31%
 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 Jacqueline Wong)
  
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