China's yuan inches higher as companies convert cash holdings
FXI•The onshore yuan rose 0.05% to 6.6711 per dollar as companies converted foreign currency holdings, offsetting broad dollar strength. The yuan's trade-weighted basket index reached a 4½-year high of 104.43.
1. Corporate conversions support yuan
The yuan edged higher against the dollar as year-end foreign-exchange settlements by companies outweighed broad dollar strength. Traders said domestic corporate clients were selling dollars into rallies as exporters began converting more foreign-currency earnings into yuan.
2. Seasonal demand and market levels
Exporters typically convert more foreign exchange toward year-end and ahead of Lunar New Year to meet accounting and administrative requirements and fund bonuses and holiday expenses. On Friday, the onshore yuan was up 0.05% at 6.6711 per dollar, while the offshore yuan was at 6.6719. The PBOC set its midpoint at 6.7152 per dollar, 396 pips weaker than a Reuters estimate; the CFETS yuan basket index rose to 104.43.
3. Dollar and yen watched
The dollar held near a 19-month high, and Treasury yields rose as investors weighed the possibility of a 50-basis-point Federal Reserve rate hike in December. Traders also watched the yen, which was near 160 per dollar, for possible official intervention.
