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Yuan edges up despite dollar's gain on signals for Sino-US trade talks

Kitco News

SHANGHAI, July 22 (Reuters) - China's yuan inched up against the dollar on Monday, shrugging off strength in the greenback, as investors hoped that some encouraging signals will be followed by progress in Sino-U.S. trade negotiations.

They welcomed Chinese companies' willingness to make new purchases of U.S. agricultural products as a gesture of goodwill between the world's two largest economies to end the year-long trade war. Prior to market opening on Monday, the People's Bank of China set the yuan's midpoint rate at 6.8759 per dollar, 124 pips or 0.18 percent weaker than the previous fix of 6.8635.

In the spot market, onshore yuan opened at 6.8780 per dollar and was changing hands at 6.8789 at midday, 21 pips stronger than Friday's late session close.

Although the onshore spot yuan drifted higher, it continued to swing in a narrow range of about 30 pips in the morning, to last week.

Traders said although some positive signs emerged from recent telephone conversations between Chinese and U.S. officials, market participants were largely retaining a wait-and-see attitude until in-person talks resume.

"Investors are waiting for more cues from the U.S.-China trade talk," Tommy Xie, head of Greater China Research at OCBC Bank in Singapore said in a note on Monday.

Prospects for global monetary easing were another factor impacting the yuan. Globally the dollar rose as investors tempered their expectations for deep U.S. interest rate cuts this month and heightened Middle East tensions supported safe-haven assets. The global dollar index rose to 97.167 at midday from the previous close of 97.151.

Li Liuyang, senior foreign exchange analyst at China Merchants Bank in Shanghai, said in a note that "even if the U.S. economy is outstanding, the dollar index is hard to have a very strong ride. Therefore, 6.9 remains the bottom for yuan to the dollar this year."

In the long term, China's latest measures to lift restrictions on foreign-invested rating agencies in bond market are expected to attract more foreign inflows to support the yuan. The offshore yuan was trading at 6.8796 per dollar as of midday.

The yuan market at 0357 GMT:

ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8759 6.8635 -0.18% Spot yuan 6.8789 6.881 0.03% Divergence from 0.04%
Spot change YTD -0.09% Spot change since 2005 20.32% revaluation

Key indexes:
Item Current Previous Change
Thomson 93.6 93.45 0.2 Reuters/HKEX
CNH index
Dollar index 97.167 97.151 0.0

*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 6.8796 -0.01%
Offshore 6.9111 -0.51% non-deliverable

*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 John Ruwitch; Editing by Richard Borsuk)

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