Prior to market opening on Friday, the People's Bank of China (PBOC) lifted its official yuan midpoint to a fresh 3-1/2-month high at 6.5342 per dollar. Friday's official midpoint was 70 pips, or 0.11 percent, firmer than the previous fix of 6.5412 on Thursday, which was the strongest since September 12. The official fixing has registered an annual rise of around 6.2 percent in 2017, the steepest gain in percentage terms since 2008.
The higher fixing gave spot yuan trade a boost. The onshore yuan opened at 6.5325 per dollar and rose to a high of 6.5100, the strongest level since September 11. As of midday, the onshore spot yuan was trading at 6.5170 at midday, 163 pips firmer than the previous late session close and 0.26 percent stronger than the midpoint. The PBOC on Friday said it is setting up a temporary liquidity facility that will let commercial banks have more cash available ahead of the coming Lunar New Year.
Some banks will be allowed to lower their reserve requirement ratios by up to 2 percentage points, for 30 days, according to the central bank statement. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.94, firmer than the previous day's 95.85.
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 6.6675, 2.00 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. If the yuan ends the late night session at the level hit during Asian hours, it would have strengthened around 6.6 percent against the dollar for the year, registering the best annual performance since 2008 and reversing three years of depreciation. In 2016, the yuan booked an annual loss of around 6.5 percent, the worst since 1994.
Copyright Reuters, 2017