Yuan inches higher on PBOC's prudent stance and strong holiday sales - Reuters

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    SHANGHAI, Feb 18 (Reuters) - China's yuan inched higher
against the dollar on the first trading day after the week-long
Lunar New Year holiday, supported by the central bank's
persistently prudent policy stance and strong holiday retail
sales data.
    The People's Bank of China (PBOC) rolled over maturing
medium-term loans earlier on Thursday, but drained 260 billion
yuan ($40.31 billion) worth of short-term liquidity as a result
of maturing reverse repos on the day. 
    Traders and analysts said the move suggested that the
central bank was keen to keep liquidity balanced with a
tightening bias for the time being, and such cash conditions
supported the exchange rate and swap curve.
    Some short-term money rates hit six-year highs before the
long holiday as the PBOC refrained from making heavier liquidity
injections, prompting some speculation that a shift to a tighter
monetary policy stance may be underway.
    Prior to the market open, the PBOC set the midpoint rate
 at 6.4536 per dollar, 145 pips or 0.22% weaker than
the previous fix of 6.4391. 
    In the spot market, the onshore yuan opened at
6.4500 per dollar and was changing hands at 6.4507 at midday, 69
pips firmer than the previous late session close on Feb. 10.
    Trading was generally tepid on the first day when the
onshore market returned from the holiday, with volume
 shrinking to $10.8 billion by midday, down from
a normal half-day volume of about $15 billion.
    Separately, buoyant retail sales during the holiday
underpinned sentiment, traders said. Official data showed that
China's retail and catering sectors enjoyed a bumper Lunar New
Year holiday week, with revenues rising almost one-third from
2020 levels thanks to strong orders from staycationing
consumers.
    "The travel restrictions will have dampened the holiday
spending, but there appears to have been strong offsetting
demand such that the reduction in net spending is less than
feared," Daria Parkhomenko, analyst at RBC Capital Markets, said
in a note.
    By midday, the global dollar index rose to 90.958,
while the offshore yuan was trading at 6.4388 per
dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4536   6.4391    -0.22%
                                       
 Spot yuan          6.4507   6.4576    0.11%
                                       
 Divergence from    -0.04%             
 midpoint*                             
 Spot change YTD                       1.20%
 Spot change since 2005                28.30%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.75       96.67     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.958      90.898    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    6.4388    0.18%
        *                        
 Offshore              6.6129    -2.41%
 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.
. 

($1 = 6.4508 Chinese yuan)
    

 (Reporting by Winni Zhou and Andrew Galbraith; Editing by Simon
Cameron-Moore)
  

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February 18, 2021 at 11:38AM
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Yuan inches higher on PBOC's prudent stance and strong holiday sales - Reuters

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