Yuan hovers at 16-month high, PBOC yet to send strong signal to rein in strength

    SHANGHAI, Sept 3 (Reuters) - The yuan hovered at a 16-month
high against the dollar on Thursday after the central bank
lifted its official midpoint rate for the eight straight trading
day, but it has yet to send any strong signal to rein in
strength in the Chinese currency.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at a new 16-month high of
6.8319 per dollar, 57 pips or 0.08% firmer than the previous fix
of 6.8376. 
    Thursday's official fixing was the strongest since May 13,
2019, but came in slightly weaker than market projections of
6.8293, similar to Wednesday. But many market participants said
the central bank has not yet robustly used its counter-cyclical
factor in the midpoint formula as it did in the past to
counteract one-way bets in the currency.
    In the spot market, onshore yuan opened at 6.8323
per dollar and was changing hands at 6.8297 at midday, up 78
pips or 0.11% from the previous late session close.    
    "The central bank has in the past mainly relied on yuan
midpoint to guide market expectations, but recent fixings have
not clearly shown such intentions and the central bank has
reiterated that it had exited frequent intervention," analysts
at China Construction Bank (Asia) said in a note.
    They expect the yuan will continue to appreciate, but at a
slower pace, in a range of 6.7 to 6.9 per dollar for the time
being.
    Several domestic currency traders said despite some
fluctuations in the greenback in global markets in recent
sessions, domestic investors have broadly shaped a consensus of
a strong yuan. 
    One trader at a Chinese bank said long yuan positions have
become crowded and there remained room for further rises in the
yuan.
    Global investment banks are revising up their forecasts for
the yuan, betting that its recent rally will be sustained due to
persistent dollar softness and continued capital inflows.

    Foreign investors in August raised their holdings of China
bonds for the 21st month in a row, lured by a rising yuan and
attractive yield premiums.
    The global dollar index rose to 92.833 at midday,
when the offshore yuan was trading at 6.8298 per
dollar. 
    
    The yuan market at 0339 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.8319   6.8376    0.08%
                                       
 Spot yuan          6.8297   6.8375    0.11%
                                       
 Divergence from    -0.03%             
 midpoint*                             
 Spot change YTD                       1.95%
 Spot change since 2005                21.18%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         93.35       93.18     0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.833      92.693    0.2
 
    
    
*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    6.8298    0.00%
        *                        
 Offshore              6.9863    -2.21%
 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 Kim
Coghill)
  

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