SHANGHAI, Nov 30 (Reuters) - China's yuan closed the
domestic trading session at a six-month high on Tuesday and were
set to notch a fourth straight monthly gain, underpinned by
persistent corporate demand and signs of liquidity tightness in
the money markets.
The onshore yuan opened at 6.3788 per dollar and
closed at 6.3701 the strongest since May 31. If the yuan
retains the gains at the late night close, it would have gained
0.54% against the dollar for the month.
Prior to the market's opening, the People's Bank of China
(PBOC) set the midpoint at a near two-month high of
6.3794 yuan per dollar, 78 pips, or 0.12%, firmer than the
previous fix of 6.3872.
The midpoint fix was largely in line with market forecasts,
traders said, and it was 1 pip weaker than Reuters' estimate of
6.3793 per dollar.
Traders said along with the firmer guidance rate and
persistent corporate conversion of their dollar receipts into
the local currency, the yuan also gained on tighter cash
conditions in money markets as financial institutions sought
cash to meet month-end administrative requirements.
While investor worries over the economic impact of the new
Omicron coronavirus variant ebbed, some analysts raised the
possibility of the variant affecting the U.S. Federal Reserve's
policy tightening trajectory.
"We expect market risk appetite to improve after the
short-term volatility ... But it is undeniable that market
confidence would weaken after the outbreaks," said Marco Sun,
chief financial markets analyst at MUFG Bank.
"If the situation of the Omicron variant deteriorates, the
Fed may postpone its first interest rate hike," he said, adding
the Fed outlook could stoke volatility in other major
currencies, including the yuan.
Hu Yifan, regional chief investment officer and chief China
economist at UBS Global Wealth Management, also argued that the
yuan's value would eventually be determined by economic
fundamentals and policy divergence between the world's two
largest economies would pile downward pressure on the Chinese
"We believe the yuan will have some mild depreciation from
the current level, driven by shrinking yield gap between China
and the United States. ... as the U.S. is slowly exiting
quantitative easing while China is rolling out more easing
measures," she said.
Hu expects China to lower the reserve requirement ratio
(RRR) before the Lunar New Year holiday in late January next
year, and forecast the yuan to weaken to 6.55 per dollar at
end-March before hitting 6.60 in June.
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Shri
Navaratnam and Uttaresh.V)