Yuan closes slightly lower, shrugs off record-high midpoint
* Upward momentum has diminished since late May
* Traders report smaller yuan purchases
* Gap between spot and midpoint narrows further
* Govt may still let yuan rise slightly for now - traders
(Updates to close) SHANGHAI, June 13 (Reuters) - The yuan fell slightly against the dollar on Thursday, despite another record-high central bank midpoint, providing further evidence that upward momentum in the Chinese currency has slowed since late May. The yuan's dip came despite the dollar falling to its lowest level against the yen in 10 weeks as investors pared bullish bets on the greenback amid uncertainty about whether the U.S. Federal Reserve will pare back its stimulus programme.
Spot yuan was trading at 6.1344 per dollar at midday, slightly weaker than the 6.1335 rate at Friday's close. China's financial markets were closed from Monday to Wednesday for the Chinese Dragon Boat Festival holiday. Before trade began on Thursday, the People's Bank of China (PBOC) set the yuan's midpoint at 6.1612, the strongest level since the country set up the domestic foreign exchange market in 1994. The yuan can rise or fall by 1 percent in a day from the PBOC's base rate. "There have been fewer dollar sales since late May as the market believes the peak for yuan appreciation is over," said a trader at a Chinese commercial bank in Shanghai. "But the government appears to still want the currency to rise slightly for now as it moves towards making the yuan fully convertible." The central bank has used the midpoint to guide the yuan to multiple record highs since early April as the government appears to be gradually moving to create conditions for a more flexible exchange-rate regime. where supply and demand for dollars is balanced, traders said. The divergence of the spot yuan from the midpoint has steadily narrowed since late May. On Thursday, the yuan was only 0.34 percent stronger than the midpoint, compared with a gap of more than 0.9 percent that persisted on most days from the fourth quarter of 2012 until last week.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1612 6.1620 +0.01% Spot yuan 6.1344 6.1335 -0.01% Divergence from midpoint* -0.34%
Spot change ytd +1.56% Spot change since 2005 revaluation +34.92%
*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 discount for offshore spot yuan traded in Hong
Kong compared to onshore yuan discount against onshore spot yuan widened on Thursday compared to last Friday, indicating that the offshore market may be in sympathy with onshore traders' suspicions that the yuan's recent appreciation may have reached its peak.
The offshore yuan market at a glance:
Instrument Current Difference from onshore Offshore spot yuan 6.1402 -0.09% Offshore non-deliverable 6.2845 -1.96%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> RECENT DEVELOPMENTS - Yuan rally starts to fade as capital inflows to China slow
- ANALYSIS-Bullish yuan herd leaves China fundamentals in the dust - Currency war or no, Beijing doesn't want Asia to take stable yuan for granted - China opens new front in money war as yuan speculation distorts export data
KEY DATA POINTS - PBOC is using its daily midpoint to restrain appreciation. GRAPHIC: http://link.reuters.com/pyx74t - China's trade surpluses mainly driven by weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Corporate yuan purchases reflect heightened yuan appreciation expectations or at least a reduction in long dollar positions. GRAPHIC: http://link.reuters.com/syx74t
- Hot money inflows return with a vengeance 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
(Editing by Kim Coghill)