Yuan ends flat as dollar demand, supply strike balance
* Yuan closes at 6.2157/dlr, 1 pip stronger than Monday
* China Jan-Feb FDI at $17.5 bln, down 1.35 pct y/y
* PBOC believed favouring yuan/dollar stability
SHANGHAI, March 19 (Reuters) - China's yuan closed almost unchanged on Tuesday as dealers said dollar supply and demand was roughly in balance. The Ministry of Commerce reported that China's foreign direct investment (FDI) inflows fell 1.35 percent in the first two months of 2013 from a year earlier, extending a run of falls triggered by a drop in investor confidence in emerging markets as global economic growth has slipped. "Trading was not affected by the FDI data, and the balance between dollar supply and demand kept the yuan rate stable," said a dealer at a European bank in Shanghai. "The market was also cautious in terms of bidding yuan up or down. Participants are looking for signs from the central bank to reveal its attitude towards the yuan's future value." Spot yuan closed at 6.2157 per dollar, nearly flat compared with Monday's close of 6.2158. The People's Bank of China (PBOC) gave the exchange rate room to weaken slightly Volume was healthy at $13.52 billion, up from Monday's $9.66 billion. The PBOC appears to be taking a wait-and-see approach in terms of a response to the weakening of Asian currencies, notably the Japanese yen. But if the yen and other Asian currencies fall much further, some traders predict the PBOC could force the yuan weaker by as much as two percent.
The onshore spot yuan market at a glance:
Item Current Previous Change
PBOC midpoint 6.2758 6.2741 -0.03 Spot yuan 6.2157 6.2158 0.00 Divergence from -0.96
Spot change ytd +0.23 Spot change since 2005 revaluation +33.15
*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 market at a glance
Instrument Current Difference from
Offshore spot yuan 6.2095 *+0.10
Offshore non-deliverable 6.3070 **-0.50
*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's trade surpluses mainly driven by weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Corporate yuan purchases in recent months reflect heightened yuan appreciation expectations or at least a reduction in long dollar positions. 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
RECENT DEVELOPMENTS - China PBOC's Yi sees faster progress on capital account reforms - China restrains yuan rise in response to Asian currency weakness - China eyes market forces to drive FX reform
- Bank of China extends yuan deposits to promote redback's rise - Taiwan yuan bonds may be dogged by policy barriers
- 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
(Editing by Jacqueline Wong)