1. China’s yuan firms, set for biggest weekly gain in over 3 months

China’s yuan firms, set for biggest weekly gain in over 3 months

China's yuan firmed slightly against the dollar on Friday, and is on course to post a weekly gain of 0.3 percent, its biggest in more than three months, as growing uncertainty over the U.S. presidential weighed on the greenback.

By: | Shanghai | Published: November 4, 2016 11:50 AM
The People's Bank of China set the midpoint rate at 6.7514 per dollar prior to the market's open, weaker than the previous fix at 6.7491.  (Reuters) The People’s Bank of China set the midpoint rate at 6.7514 per dollar prior to the market’s open, weaker than the previous fix at 6.7491. (Reuters)

China’s yuan firmed slightly against the dollar on Friday, and is on course to post a weekly gain of 0.3 percent, its biggest in more than three months, as growing uncertainty over the U.S. presidential weighed on the greenback.

While Democratic contender Hillary Clinton, seen as the candidate of the status quo, remained ahead in many polls ahead of the Nov. 8 election, the race has tightened significantly, according to the latest Reuters/Ipsos States of the Nation project.

The People’s Bank of China set the midpoint rate at 6.7514 per dollar prior to the market’s open, weaker than the previous fix at 6.7491.

The spot market opened at 6.7605 per dollar and was changing hands at 6.7610 at midday, 15 pips firmer than the previous late session close and 0.14 percent softer than the midpoint.

Fear of dollar volatility as a result of the election was keeping some investors to the sidelines, though some were increasing their dollar positions, traders said.

“Investors are adopting different strategies now. Some companies may think the current 6.76 per dollar levels are already better than the previous 6.78, so they were purchasing dollars,” said a trader at a foreign bank in Shanghai.

The trader noted the yuan’s movement in the near term would be highly affected by political factors overseas.

Some market watchers pointed out that an upcoming U.S. non-farm payrolls report would impact expectations of an interest rate hike by the Federal Reserve in December, which could also affect the yuan to the dollar movement next week.

But otherwise the election was outweighing economic fundamentals for now. Jameel Ahmad, an analyst at FXTM, said the reasonable chance of Republican candidate Donald Trump winning the election had still not been priced in by markets.

“That’s actually the markets’ problem … Basically if Trump wins, the financial market outlook would turn upside down, completely, at least in the short term,” he said.The dollar index stood at 97.226 at midday, just off a three-week low of 97.041 struck overnight. But the dollar index is still set to lose about 1.2 percent this week.

The offshore yuan was trading 0.13 percent weaker than the onshore spot at 6.7701 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.936, 2.66 percent softer than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

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