Yuan slides on falling exports, ignores c.bank guidance
* China exports unexpectedly fell 3.1 pct in June
* Challenging wisdom of allowing rapid yuan rise in April and May
* Best time for yuan revaluation is over - traders
* Radical reforms in growth downtrend risky -- traders
SHANGHAI, July 10 (Reuters) - China's yuan sank against the dollar on Wednesday as unexpectedly poor trade data for June sparked worries over the health of the world's second-largest economy. The yuan's decline was all the more notable as the central bank had set a stronger midpoint for the currency's daily trading band with the dollar. Spot yuan was trading at 6.1359 against the dollar at midday, down 0.1 percent from Tuesday's close of 6.1295 even though the People's Bank of China set the midpoint at 6.1652, a sharp rise of 0.13 percent from Tuesday. Chinese exports fell by 3.1 percent in June from a year earlier, official data published on Wednesday showed, the first decline since January 2012, shocking a market that had previously expected a 4.0 percent rise. The customs agency said exporters were losing confidence in face of weak overseas demand, rising labour costs and a strong yuan currency. The PBOC had surprised the market by letting the yuan appreciate 1.5 percent in April and May. "Signs are clear this year that the PBOC wants to quicken the pace to let the yuan rise as part of China's wider financial reforms," said a trader at a European bank in Shanghai. "But the best time for China to let the yuan be revalued properly was during its peak of economic growth in 2002 to 2007. That phase is now over. The country will take a big risk if it embarks on radical currency reforms when its growth is on a weakening track." The PBOC often appears to try to guide the yuan to stronger levels against the dollar during sensitive diplomatic events with the United States in order to deflect criticism that China has kept its currency artificially low in the past. Top U.S. and Chinese officials will meet in Washington this week for the annual U.S.-China Strategic and Economic Dialogue, a process launched five years ago to help the world's two largest economies manage an increasingly complex relationship.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.1652 6.1730 +0.13% Spot yuan 6.1359 6.1295 -0.10% Divergence from -0.48%
Spot change ytd +1.54% Spot change since 2005 revaluation +34.89%
*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 6.1376 -0.03%* Offshore non-deliverable 6.2885 -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 - 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 Simon Cameron-Moore)