Yuan edges up on c.bank guidance, upside seen limited
* PBOC sets stronger midpoint after dollar correction
* China commerce ministry vows to support exports
* BIS data shows yuan hits record high vs basket in June
* PBOC likely to guide yuan down against currency basket - economist
SHANGHAI, July 17 (Reuters) - The yuan edged higher against the dollar on Wednesday after the central bank set a stronger midpoint, but dealers think the potential for the yuan to rise further is limited given the weakness of the domestic economy. The People's Bank of China (PBOC) fixed its daily midpoint at 6.1652, 0.06 percent stronger than Tuesday's fix, reflecting a 0.7 percent in dollar index but lagging the greenback's strength. Spot yuan was trading at 6.1320 versus the dollar at midday, rising 0.05 percent from Tuesday's close. China's commerce ministry said on Wednesday that it will soon publish measures to support exports, which fell in June for the first time in 17 months, among a slew of weak data for the world's second-largest economy. "The yuan is likely to remain flat, or fall slightly in the next month or so," said a dealer at a European bank in Shanghai. The PBOC has let the yuan rise and fall moderately since early June amid a slowdown in economic growth after it allowed a relatively strong rally in the currency in April and May. The Bank for International Settlement (BIS) index for the yuan's real effective exchange rate (REER) - the currency's value against a trade-weighted basket after adjustments based on inflation - appreciated 0.18 percent to 116.34 in June from 116.13 in May, the eighth consecutive month that the index showed the Chinese currency hitting a record high, according to BIS data released late on Tuesday. Dariusz Kowalczyk, forex strategist and economist at Credit Agricole CIB in Hong Kong, wrote in a research note that he expects the PBOC to guide the yuan lower in future months, in both REER terms and nominally against the dollar.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.1652 6.1692 +0.06% Spot yuan 6.1320 6.1350 +0.05% Divergence from -0.54%
Spot change ytd +1.60% Spot change since 2005 revaluation +34.97% *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 most recent CNH Tracker column, following the offshore yuan market, can be downloaded here: http://link.reuters.com/ser59t
The offshore yuan market at a glance:
Instrument Current Difference from onshore Offshore spot yuan 6.1360 -0.07%* Offshore non-deliverable 6.2655 -1.60%**
*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 - ANALYSIS-China exports slide raises doubts about currency policy - CHINA MONEY-Faltering exports could mean flat yuan or worse in H2 - 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 Kim Coghill)