Yuan nearly flat, pressured by Asian currency weakness
* Yuan little changed at 6.2190/dlr near midday
* Corporate yuan demand remains strong
* But weakness in JPY, KRW, TWD, and AUD weigh on yuan
* Chinese wary of trade impact from competitive devaluation
SHANGHAI, Jan 31 (Reuters) - China's yuan was little changed on Thursday as traders said weakness in Asian currencies is counteracting appreciation pressure from strong corporate demand. Traders say client demand for the Chinese currency remains strong. Such reports match data released last weak showing that yuan purchases by bank clients in December exceeded dollar purchases by the largest amount in at least two years.
Despite this upward pressure, the People's Bank of China (PBOC) has held its daily midpoint relatively stable in recent days. The spot rate has continued to trade stronger than the fix, but the two rates have moved in stable parallel in recent days. Traders say the impact of a weakening trend in Asian currencies against the dollar - notably Japanese yen, Korean won, Taiwan dollar and the Australian dollar - has weighed on the yuan. Amid concern about a global "currency war", traders say Chinese authorities are loathe to allow the yuan to strengthen significantly in case its trading partners in Asian engage in competitive devaluation. The PBOC has traditionally set stronger fixings in response to a weakening in the dollar index overnight. But the trend in Asian currencies has not been reflected in the dollar index, which tracks the greenback's value against a basket of currencies heavily weighted by the euro. The euro has strengthened in recent days amid renewed confidence about the health of European banks. Beyond the impact of the midpoint, market forces also naturally create some correlation between the yuan and other Asian currencies, traders say.
The onshore spot yuan market at a glance:
Item Current Previous Change close (pct) PBOC midpoint 6.2795 6.2806 +0.02 Spot yuan 6.2191 6.2204 +0.02 Divergence from midpoint* -0.96 Spot change ytd +0.18 Spot change since 2005 +33.08
*Negative number indicates spot yuan is trading stronger than the fix. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 1 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
The offshore yuan market at a glance:
Instrument Current Difference from
Offshore spot yuan 6.2145 0.07*Offshore non-deliverable 6.3075 -0.44**
*Premium for offshore spot over onshore
**Offshore one-year non-deliverable forwards (NDFs) reflect market expectations for appreciation or depreciation of PBOC's official midpoint.
MARKET DRIVERS - Forces underpinning yuan rally to lose steam in 2013
- Spot yuan has rallied strongly since late July 2012, and the PBOC is using its daily midpoint to restrain further appreciation. GRAPHIC: http://link.reuters.com/pyx74t - China's trade surplus surged in late 2012, but the surge was mainly due to weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Corporate yuan purchases still exceed dollar purchases, but the gap is narrowing. Exporters are converting progressively smaller portions of their foreign exchange receipts into yuan. GRAPHIC: http://link.reuters.com/syx74t - Hot money outflows may be putting downward pressure on the yuan. GRAPHIC: http://link.reuters.com/saz74t - Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t
(Editing by Kim Coghill)