Yuan falls after c.bank sets unexpectedly weak midpoint
* Yuan falls to 6.1651/dlr in early afternoon
* C.bank sets midpoint at 6.1651/dlr
* Market players expect stability in near term
SHANGHAI, June 18 (Reuters) - China's yuan fell on Tuesday after the People's Bank of China set a lower-than-expected midpoint, generating talk that authorities may intend to guide the currency weaker in the near term, dealers said. The People's Bank of China (PBOC) fixed its midpoint at 6.1651 per dollar on Tuesday, 0.09 percent weaker than Monday's record high. Spot yuan changed hands at 6.1300 in early afternoon, 0.08 percent softer than Monday's close. The dollar/yuan rate was 0.57 below the midpoint, compared with a gap of more than 0.9 percent that persisted on most days between the fourth quarter of 2012 and late last month. "The midpoint hit us unexpectedly," said a dealer at a city commercial bank in Shanghai. "We are guessing about the central bank's intent ... is there any possibility of yuan depreciation?" But most market players said they believed a sharp rise or fall in the yuan in the near term was unlikely, given signs of weakness in the Chinese economy. Some dealers said the central bank may try to narrow the gap between spot yuan and midpoint even further. But they noted that client demand for yuan remained solid, despite signs that the strong appreciation pressure that pushed the currency sharply higher in April and May has abated. That suggests the central bank would have to strengthen the midpoint further if it wanted to bring it closer to the spot rate. "Actually, the central bank have been trying to narrow the range, but clients aren't buying (dollars). Chinese clients' habit is to convert (foreign) money to yuan as soon as they get it, or even to pre-convert. So the market is usually in a net long yuan position," the city commercial bank dealer said.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1651 6.1598 -0.09 Spot yuan 6.1300 6.125 -0.08 Divergence from -0.57
Spot change ytd +1.64 Spot change since 2005 revaluation +35.02
*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 onshore
Offshore spot yuan 6.1375 -0.12 Offshore non-deliverable 6.2726 -1.71
*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
- China opens new front in money war as yuan speculation distorts export data - 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
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)