Yuan firms slightly on 8th anniversary of revaluation
* Traders see nod to anniversary in PBOC yuan midpoint
* Yuan less undervalued after 8 years of appreciation
* Market forces play bigger role in deciding yuan value
SHANGHAI, July 22 (Reuters) - The yuan strengthened slightly in morning trade on Monday, the eighth anniversary of the currency's revaluation, but the exchange rate remained well within its 1 percent daily trading band. There was no significant reaction in the currency or money markets to the government's decision on Friday to scrap the floor on commercial bank lending rates.
Spot yuan traded at 6.1369 versus the dollar at midday, up from 6.1379 at Friday's close. The People's Bank of China (PBOC) fixed the official daily midpoint at 6.1721 on Monday morning, with the yuan strengthening from 6.1751 at Friday's fix. Some traders said the last three digits of Monday's midpoint were intended to mark the anniversary of the yuan's revaluation on July 21, 2005. The yuan has appreciated 34.86 percent against the dollar since then. PBOC officials have repeatedly said that the yuan has now reached its rough fair value, but foreign trading partners continue to disagree. Last week, U.S. Federal Reserve Chairman Ben Bernanke accused China of restraining its currency in order to make its exports more competitive. Regardless, market forces have begun playing a bigger role in pricing the yuan since the revaluation. Although the government still has the final say on the currency's value, it has steadily allowed the market more room to fluctuate, in particular by widening the intra-day trading band in 2012. So far this year the yuan stands 1.52 percent stronger against the dollar, but there are expectations that bullish sentiment will wane due to concerns over China's export performance. A commentary published by the official Xinhua news service on Sunday defended China's gradual approach to currency reform and argued it was paying a high price for letting the yuan rise. "The RMB exchange rate reform has been brave, as tens of thousands of low-end manufacturers operating at a low profit margin have had to take a significant loss due to a stronger RMB yuan," the commentary said, referring to the yuan by initials representing renminbi, the official name of China's currency. China posted an unexpectedly sharp 3.1 percent drop in exports in June, surprising a market that had expected 4 percent growth. The currency has been appreciating in trade-weighted terms every month since September last year. Signs of possible capital outflows from China amid a slowdown of the world's second-largest economy were also fuelling yuan bears. The central bank and commercial banks together sold 41.2 billion yuan ($6.7 billion) worth of foreign exchange to Chinese corporates on a net basis in June, reversing six months of net purchases, according to a Reuters calculation based on PBOC data released on Monday. That indicates that Chinese companies are growing increasingly bullish towards the dollar. Long dollar sentiment has increased on speculation that the United States is preparing to wind down its monetary easing programme, which would put upward pressure on the dollar's relative value.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.1721 6.1751 +0.05% Spot yuan 6.1369 6.1379 +0.02% Divergence from -0.57%
Spot change ytd +1.52% Spot change since 2005 revaluation +34.86% *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 6.1367 0.00%* Offshore non-deliverable 6.2746 -1.63%**
*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 Simon Cameron-Moore)