Yuan rises on big corporate demand, despite weaker fixing
* Yuan gains to 6.1300/dlr despite weaker midpoint
* Market surprised by heavy yuan buying on Monday
* But most traders don't expect strong appreciation
* Li Keqiang's U.S. visit in mid-July to offer clues
SHANGHAI, July 1 (Reuters) - The Chinese yuan rose on Monday on strong corporate demand, shrugging off weaker guidance by the central bank, but traders said prospects for further appreciation remained low. The People's Bank of China (PBOC) fixed its midpoint at 6.1805 per dollar on Monday, 0.03 percent weaker than Friday's fix, responding to a rise in the dollar index since Friday's close. But the spot rate shrugged off the weaker midpoint, changing hands at low of 6.1300 at midday, up 0.12 percent from Friday's close. "Maybe because it's the beginning of month, I can see huge yuan demand in the market. Even the big banks are buying yuan," said a dealer at a city commercial bank in Shanghai. Large banks are often net dollar buys in the interbank market because they serve multinational Chinese firms who import goods from abroad. After shrinking in June, the gap between the spot rate and the midpoint widened on Monday, suggesting a return of appreciation pressure, at least temporarily. The dollar-yuan rate was 0.82 percent below the midpoint near midday on Monday. That gap hovered above 0.9 percent for most of the period between the fourth quarter of 2012 and late May, indicating that the PBOC's midpoint was acting as a restraint on strong market pressure for appreciation. But the gap gradually narrowed in June, indicating that some pressure had abated. It fluctuated around 0.5 percent last week. Despite the unexpected rise on Monday, dealers still don't expect strong appreciation in the near term. Market pressure and strong central bank fixings combined to lift the yuan by 1.4 percent in April, but capital inflows into China have slowed markedly since then. Traders expect the central bank will hold the steady in the weeks to come. Dealers said they are also awaiting the result of the G20 meeting and Chinese President Xi Jinping's visit to the United States in mid-July, which could guide the yuan's next move.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1805 6.1787 -0.03 Spot yuan 6.1300 6.1376 0.12 Divergence from -0.82
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 6.1325 -0.04 Offshore non-deliverable 6.2870 -1.69
*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 - Gap between PBOC midpoint and spot rate is narrowing. GRAPHIC: http://link.reuters.com/qyx74t - China's trade surpluses mainly driven by weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Corporate FX purchases in May show reduction in yuan appreciation expectations. GRAPHIC: http://link.reuters.com/tyx74t - Hot money inflows turn to outflows in May 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
(Editing by Sanjeev Miglani)