Yuan softens slightly on yen recovery, volumes moderate
SHANGHAI, Feb 4 (Reuters) - The yuan traded at its weakest level in four weeks on Monday after the central bank lowered its guidance midpoint rate following an overnight rise in the dollar. Traders said the central bank had intervened to keep the yuan low last week, disregarding a softening trend in the dollar index, in order to counter moves by some other Asian central banks to weaken their currencies. However, the yen bounced back from a 2-1/2 year low against the dollar on Monday as option-related buying prompted short-term players to give up a further test of the yen's downside for now. Central bank intervention in the Chinese forex market is always difficult to prove, but traders say unusually heavy trading volumes - like the $22 billion posted on Friday - often indicate the influence of the People's Bank of China (PBOC) in the market. Transaction volumes moderated during the Monday morning session, standing at slightly more than $6 billion by midday. Volumes are usually muted in the week leading to the Chinese Spring Festival, which will see mainland markets close from Feb. 11 through Feb. 15.
The onshore spot yuan market at a glance:
Item Current Previous Change
PBOC midpoint 6.2860 6.2819 -0.07 Spot yuan 6.2292 6.2270 -0.04
Divergence from midpoint* -0.90
Spot change ytd +0.02 Spot change since 2005 +32.87
*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 1 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
The offshore yuan , which is not restrained by the
onshore midpoint, continued to trade at a slight premium to the onshore version, as they have since the onshore spot market began rallying in November. One-year offshore non-deliverable forwards (NDFs), considered an imperfect indicator of expectations for future appreciation or depreciation, continued to apply depreciation for the yuan in the next 12 months.
The offshore yuan market at a glance:
Instrument Current Difference from
Offshore spot yuan 6.2130 +0.26*Offshore non-deliverable 6.3200 +0.54**
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
MARKET DRIVERS - Corporates get tough lesson in FX risk from central bank - 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 Richard Borsuk)