China's yuan edges higher, upside seen limited
HONG KONG, July 26 (Reuters) - The Chinese yuan edged higher against the dollar on Friday after the central bank set a stronger midpoint, but dealers said room for further appreciation might be limited given worries about the outlook for China's economy. Spot yuan changed hands at 6.1332 per dollar at midday, slightly firmer than Thursday's close 6.1347. The yuan rallied strongly in April and May, but since then concerns about how much the world's second-largest economy is slowing has seen it contained in a narrow range. China has rolled out a slew of measures to support firms and the economy. This week the government scrapped value-added taxes for small businesses, cut red tape for importers and exporters, and simplified rules for service industry firms needing foreign currency. Traders said the concerns about growth and losses in other emerging currencies, as the dollar strengthens on signs the U.S. Federal Reserve may start withdrawing some of its monetary stimulus this year, meant chances for significant yuan gains appeared slim. Onshore dollar/yuan forwards held at a high level, reflecting tightness in money markets as demand for funds rises at the end of the month. "Chinese banks have been taking money from the market and the central bank has not done much through its open market operations recently, which keeps liquidity in a tight situation," said a trader in Shanghai.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.172 6.1759 0.06% Spot yuan 6.1332 6.1347 0.02%
Divergence from midpoint* -0.63%
Spot change ytd 1.58% Spot change since 2005 revaluation 34.95%
*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
Offshore yuan spot was traded at 6.1344 by midday,
slightly weaker than the onshore spot, indicating expectations of an appreciation of the yuan have faded.
The offshore yuan market at a glance:
Instrument Current Difference Offshore spot yuan 6.1343 -0.02%* Offshore non-deliverable 6.275 -1.64%**
*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 John Mair)