Yuan steady, market cautious after Asian currency depreciation
* Yuan trades at 6.2424/dollar at midday
* C.bank sets midpoint slightly weaker than Monday
* Expectation of yuan appreciation reverses - dealer
SHANGHAI, Feb 19 (Reuters) - The yuan was steady on Tuesday after the People's Bank of China (PBOC) set its daily midpoint almost flat, signalling its intent to keep the Chinese currency from appreciating while many Asian currencies are weakening. Spot yuan was trading at 6.2424 per dollar near midday, three pips stronger than 6.2427 at Monday's close. Volume was healthy at $7 billion on Tuesday morning, up from Monday morning's $5.3 billion. Before trading began, the PBOC set its midpoint at 6.2821, five pips weaker than Monday's midpoint, in line with the dollar index, which was little changed overnight and in Asian morning trade. "Banks and clients have increasingly taken a wait-and-see attitude towards the future value of the yuan after the recent depreciation of Asian currencies, led by the yen," said a dealer at a foreign bank in Shanghai. "Bullish sentiment towards the yuan's appreciation during the last quarter of 2012 and in January has largely been reversed. People are thinking that the yuan may eventually feel the heat of depreciation from other Asian currencies," the dealer said. Caution has increased since the weekend, when a statement to devalue the yen. The market largely interpreted that statement as de facto acceptance of Japan's recent expansionary monetary policies, which have contributed to a weaker yen.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.2821 6.2816 -0.01Spot yuan 6.2424 6.2327 0.00Divergence from -0.63
midpoint*
Spot change ytd -0.19 Spot change since 2005 revaluation +32.59 *Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint. The 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 traded in Hong Kong (CNH) remains
at a premium to the onshore version. Analysts say this is partly due to the fact that the offshore yuan is not bound by the official midpoint, which keeps the exchange rate within 1 percent on either side of the fix. One-year non-deliverable forwards, considered an imperfect indicator of future expectations for yuan appreciation or depreciation, were quoted at rates implying depreciation over the next 12 months.
The offshore yuan market at a glance:
Instrument Current Difference from
onshore (pct)
Offshore spot yuan 6.2350 +0.12*Offshore non-deliverable 6.3247 -0.68**
forwards
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
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MARKET DRIVERS - G20 promises unlikely to end devaluation debate
- 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
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(Editing by Richard Borsuk)