Chinese yuan weakens as Democrats take control of Senate

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    SHANGHAI, Jan 7 (Reuters) - China's yuan firmed on Thursday
against the dollar, which was pressured by expectations of
bigger U.S. fiscal spending after Democrats won control of the
Senate.
    The dollar languished near its lowest level in nearly three
years on after Democrats won control of the chamber, clearing
the way for a larger fiscal stimulus under President-elect Joe
Biden.
    The People's Bank of China set the midpoint rate
at 6.4608 per dollar prior to market open, 4 pips weaker than
the previous fixing of 6.4604. 
    The spot market opened at 6.4570 per dollar and
was changing hands at 6.4571 at midday, 69 pips firmer than the
previous late session close.
    Traders and analysts said regulators' recent moves to guide
expectations in the currency market aimed to prevent excessive
speculation and could slow the yuan rally.
    China's foreign exchange regulator said on Wednesday it will
fend off disorderly currency fluctuations, after sharp gains in
the yuan at the start of the year.
    The PBOC said on Wednesday it would make its monetary policy
flexible, targeted and appropriate in 2021, focusing on
supporting small firms as the economy recovers. 
    "Regulators want a slow yuan rise, which would allow export
companies to do better hedging," said a trader at a Chinese
bank.  
    "The yuan strength in the long-term is not a bad thing,
though a quick rally could raise concerns over the potential
impact on the country's economy, including quick foreign capital
inflows and a shock to the country's exports," said Shen
Xinfeng, chief macroanalyst at Northeast Securities.    
    "The regulators' recent remarks mean there is strong
pressure for the yuan to rise, though they would not change its
rising trend," Shen added.  
    Eyes were also on Sino-U.S. tensions, which could limit the
yuan's advance. 
    The Trump administration is considering adding tech giants
Alibaba and Tencent to a blacklist of firms
allegedly owned or controlled by the Chinese military, two
people familiar with the matter said - a move that could inflame
tensions with Beijing days before U.S. President-elect Joe Biden
takes office. 
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 95.76, firmer than the previous day's
95.65. 
    The global dollar index rose to 89.402 from the
previous close of 89.325. 
    The offshore yuan was trading at 6.4378 per dollar.
    Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan's value, traded
at 6.574, -1.72% away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.


    The yuan market at 4:12AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4608   6.4604    -0.01%
                                       
 Spot yuan          6.4565   6.464     0.12%
                                       
 Divergence from    -0.07%             
 midpoint*                             
 Spot change YTD                       1.11%
 Spot change since 2005                28.19%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.76       95.65     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    89.402      89.325    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    6.4378    0.29%
        *                        
 Offshore              6.574     -1.72%
 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 Luoyan Liu, Han Xiao and Andrew Galbraith;
Editing by Sam Holmes)
  

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