Yuan slips on PBOC guidance, Taiwan starts offshore yuan trading
* Spot yuan trades at 6.2319/dollar by midday
* PBOC sets midpoint slightly weaker at 6.2881
* Taiwan launches offshore yuan trading, no impact on onshore yuan
SHANGHAI, Feb 6 (Reuters) - The yuan slipped against the dollar on Wednesday, falling into negative territory for the year in intraday trading, guided by a slightly weaker midpoint set by the People's Bank of China (PBOC). Chinese authorities appear to have responded to the dramatic fall in the Japanese yen and other Asian currencies in recent weeks by tightening their grip on the yuan and beating back market pressure for the yuan to appreciate. The launch of offshore yuan trading in Taiwan on Wednesday had no impact on onshore spot yuan, traders said, although analysts were optimistic over the prospect of Taiwan's yuan market. Frances Cheung, strategist at Credit Agricole CIB, said there were promising prospects for yuan business in Taiwan. These included Taiwan's supply of yuan from its trade surplus with China and Taiwan's foreign direct investment to China as an incentive for Taiwan companies to issue dim sum bonds, she wrote in a research note. Onshore trading volumes were robust despite the coming week-long holiday next week for the Chinese lunar new year, traders said. Volume was around $7.2 billion on Wednesday morning.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.2881 6.285 -0.05Spot yuan 6.2319 6.2294 -0.04Divergence from -0.89
Spot change ytd -0.03 Spot change since +32.81
*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.
The offshore yuan traded in Hong Kong, which is not
restrained by the onshore midpoint, continued to trade at a slight premium to the onshore version, as it has 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 imply depreciation for the yuan in the next 12 months.
The offshore yuan market at a glance:
Instrument Current Difference from
Offshore spot yuan 6.2145 +0.28*
Offshore 6.3165 -0.48**
non-deliverable forwards (pct)
*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 - China restrains yuan rise in response to Asian currency weakness - Corporates get tough lesson in FX risk from central bank
- Offshore yuan premium returns as market bets on appreciation - 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 Eric Meijer)