Yuan higher as PBOC signals greater tolerance for gains

SHANGHAI, Sept 16 (Reuters) - The yuan advanced on Wednesday after firm central bank guidance indicated an increasing tolerance for a stronger currency, although gains were pared as investors trimmed risk exposure ahead of the Federal Reserve's policy decision. Global markets have shifted their attention to the Fed's meeting due later in the session for clues on the monetary policy outlook after the world's largest economy adopted a more accommodative approach to inflation. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7825 per dollar, 397 pips or 0.59% firmer than the previous fix of 6.8222. It was the strongest guidance since May 9, 2019. The fixing marked the biggest one-day gain in percentage terms since April 8 and largely matched market projections. "Policymakers' acceptance of RMB's strength should be sufficient to push USD/CNH lower so long as it is fundamentally and not speculatory driven," Stephen Innes, chief global markets strategist at AxiCorp, said in a note. "The ultimate goal is still for a floating exchange regime as China prepares to open up its financial market further and internationalise its currency." In the spot market, onshore yuan opened at 6.7766 per dollar and rose to a high of 6.7674 at one point, its strongest since May 8, 2019. By midday, it was changing hands at 6.7729, 89 pips firmer than the previous late session close. Rising long positions in the yuan supported the strength in the local currency, traders said. That came as corporate clients offloaded dollars to limit exchange losses after the spot price rose past the key 6.8 per dollar level, once considered the 2020 ceiling for the Chinese currency. But some traders said they have trimmed their short dollar positions for their own proprietary accounts amid uncertainty about the Fed. "The RMB appreciation is in alignment with the China's latest development roadmap," said Ken Cheung, chief Asian FX strategist at Mizuho Bank. "The dual circulation development plan calls for digging up the potential of China's enormous consumption market and cutting its reliance on exports demand as well as the overseas supply-chain." Cheung said the PBOC has sufficient tools to counteract yuan strength if continued appreciation creates policy concerns. Separately, Sino-U.S. tensions remain a key market focus. The World Trade Organization found on Tuesday that the United States breached global trading rules by imposing multibillion-dollar tariffs in President Donald Trump's trade war with China, a ruling that drew anger from Washington. The yuan market at 0404 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.7825 6.8222 0.59% Spot yuan 6.7729 6.7818 0.13% Divergence from -0.14% midpoint* Spot change YTD 2.81% Spot change since 2005 22.20% revaluation Key indexes: Item Current Previous Change Thomson 94.03 93.9 0.1 Reuters/HKEX CNH index Dollar index 93.042 93.122 -0.1 *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 6.772 0.01% * Offshore 6.916 -1.93% 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 Sam Holmes)

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