Yuan closes down on resumed dollar appreciation
(Updates to market close) SHANGHAI, March 7 (Reuters) - The yuan pulled back from near seven-week highs on Thursday as the dollar resumed its climb. The People's Bank of China (PBOC) set the official midpoint -- from which the exchange rate is allowed to diverge by 1 percent in either direction -- at 6.2785, down 0.06 percent from Wednesday's midpoint, as the dollar index shot upward in overnight trade after sinking for most of the week. Intraday trade remained range-bound at the strong side of the permitted range, and volumes increased, closing at $14 billion, up from $12 billion on Wednesday. The yuan on Wednesday firmed to levels not seen since mid-January. The dollar firmed on strong U.S. job data and on expectations that the European Central Bank is planning to cut rates and otherwise ease policy as growth and inflation in the euro zone remains disappointing. The apparent stabilisation of the Japanese yen after a three-month bout of depreciation has given the PBOC more leeway to permit yuan appreciation. But recent comments from the head of China's sovereign wealth fund accusing Japan of using its neighbors as a "garbage bin" suggest China is still concerned that Japan may continue to ease policy. On the other hand, data from regulators hinting at renewed inflows of foreign capital in January supports confidence in appreciation. Chinese banks, including the central bank, purchased a record net 683.7 billion yuan ($109.90 billion) of foreign exchange in January. A comparison of monthly import and export data shows that exporters are increasingly converting their forex receipts that into yuan, while importers are decreasing the proportion of their import payments that they are converting into foreign currency. (GRAPHIC: http://link.reuters.com/syx74t)
The onshore spot yuan market at a glance:
Item Current Previous Change
(pct)
PBOC midpoint 6.2785 6.2745 -0.06 Spot yuan 6.2202 6.2181 -0.03
Divergence from midpoint* -0.93
Spot change ytd +0.16 Spot change since 2005 revaluation +33.06 *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 MARKET
The offshore yuan (CNH) market at a glance:
Instrument Current Difference from
onshore (pct)
Offshore spot yuan 6.2065 +0.22*Offshore non-deliverable 6.3145 -0.57**
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 - High Dim Sum yields masking solid credit stories
- Corporates cautious on yuan internationalisation
- China to expand foreign investment choices under RQFII
- PBOC plays forex hardball with domestic firms in interbank market - China restrains yuan rise in response to Asian currency weakness
DATA POINTS - 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 in recent months reflect strong yuan appreciation expectations. GRAPHIC: http://link.reuters.com/syx74t
- Hot money inflows, which should support yuan appreciation, returned in Jan following nine straight months of outflows. GRAPHIC: http://link.reuters.com/raz74t - 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 Kim Coghill)