Yuan crosses key threshold and hits one-month high

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    SHANGHAI, April 20 (Reuters) - China's yuan strengthened
past a key threshold to the firmest in a month on Tuesday,
underpinned by broad dollar weakness following a dip in U.S.
bond yields.    
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at a near one-month high of
6.5103 per dollar, 130 pips or 0.2% firmer than the previous fix
of 6.5233. 
    In the spot market, onshore yuan opened at 6.5020
per dollar, rose past the psychologically important 6.5 per
dollar level to a high of 6.4918, the strongest since March 18.
By midday, it was changing hands at 6.4959, 151 pips firmer than
the previous late session close.
    Its offshore counterpart also strengthened past the
key level to trade at 6.491 per dollar at midday.
    Traders said the yuan's strength was reflecting broad dollar
weakness, and was likely to consolidate around 6.5 per dollar.
    "We expect USD/CNY to enter a period of consolidation
following the stabilisation of U.S. Treasury bond yields and the
USD," Becky Liu, head of China macro strategy at Standard
Chartered, said in a note.
    Liu added the yuan's fundamentals remained strong but its
advantage over other developed economy currencies had narrowed.
More channels for capital outflows and a pick-up in dividend
payments could reduce inflows into China and limit upside
potential for the Chinese currency in the near term.
    The bank revised down its yuan forecasts to 6.5/dollar at
the end of Q2, 6.6 at end of Q3 and 6.58 at the year-end,
compared with 6.3, 6.4, 6.45, respectively, in previous
estimates.
    Investors continue to gauge U.S.-China policy divergence,
pace of domestic vaccine rollouts, global economic trends and
the yield gap between China and other major countries, for clues
on the yuan's outlook.
    On Tuesday, the market took in stride no change to the
benchmark lending rate for corporate and household loans. China
kept the loan prime rate steady for the 12th straight month at
its April fixing, matching market expectations.
    "With the economy doing well, policymakers are now focused
on tackling financial risks. But political constraints mean that
these efforts are unlikely to include policy rate hikes," said
Julian Evans-Pritchard, senior China economist at Capital
Economics, who does not expect any change to policy rates in the
coming months.
    As of midday, the global dollar index fell to 90.904
from the previous close of 91.049. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.5103   6.5233    0.20%
                                       
 Spot yuan          6.4959   6.511     0.23%
                                       
 Divergence from    -0.22%             
 midpoint*                             
 Spot change YTD                       0.50%
 Spot change since 2005                27.41%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.51       96.53     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.904      91.049    -0.2
 
*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    6.491     0.08%
        *                        
 Offshore              6.6705    -2.40%
 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
Jacqueline Wong)
  



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