China's yuan firmed against the dollar on Friday and is set to post its biggest quarterly gain in a decade, as the country attracts capital inflows and US trade frictions bolstered expectations of a firmer Chinese currency. Taking cues from a firmer mid-point set by China's central bank, the yuan opened at 6.2870 per dollar in the spot market and was changing hands at 6.2695 at midday.
Barring a sharp pullback later in the session, the yuan is likely to post its highest closing level since August 10, 2015, capping its fifth consecutive quarterly gains, with an appreciation of around 3.7 percent during the March quarter. The yuan's biggest quarterly gain since early 2008 comes amid increasing signs China's economy has stabilised, whetting foreign appetite for Chinese assets.
Late on Thursday, China's top five lenders reported strong performance and expected business conditions to continue to improve this year, as Beijing's structural reforms bore fruit while a crackdown on shadow financing reduced systemic risks. "If you look at top banks' results, China's economy is not as bad as some had expected," said Tang Xiangbin, an analyst at China Minsheng Corp.
Tang said that since last year, capital has been gradually flowing back towards China, and that this trend was likely to continue "as China further deregulates its capital markets." The Bloomberg Barclays Global Aggregate Index will include Chinese yuan-denominated government and policy bank securities starting next year, Bloomberg said earlier this month.
Starting June, global index publisher MSCI will include China stocks into its emerging market benchmark. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.9, firmer than the previous day's 97.78.
The global dollar index fell to 90.012 from the previous close of 90.151. The offshore yuan was trading 0.10 percent away from the onshore spot at 6.2635 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 6.3715, 1.31 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
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