Yuan edges up, traders see PBOC encouraging mildly firm trend
* PBOC appears to have reaffirmed yuan appreciation trend
* Yuan follows 'two steps forward, one step back' upward course
* Traders consider raising forecasts for end-2013
* But macro-economic uncertainty clouds the picture
SHANGHAI, Aug 14 (Reuters) - China's yuan gained slightly on Wednesday morning as traders expected the central bank to gradually guide the currency higher despite setting a slightly weaker official daily midpoint against the dollar. Spot yuan changed hands around 6.1190 per dollar near midday, 0.04 percent firmer than Tuesday's close of 6.1217. The Chinese currency has hovered near its all-time high of 6.1143 since the record was set last Thursday. The People's Bank of China (PBOC) set its official midpoint at 6.1720, 0.02 percent weaker than Tuesday's fix. The central bank has set weaker fixings over the last two days following a six-day run of firmer midpoints that helped guide the spot rate to record highs last week. Traders said the PBOC appears to be using a recent weakening in the dollar index and China's better-than-expected July trade performance as reasons to guide the yuan higher. "This is the typical pattern of two steps forward, one step backward, that the PBOC has used to guide the yuan's appreciation since the revaluation (in 2005)," said a senior dealer at a European bank in Shanghai. "Judging from the central bank's recent signals, we may raise our forecasts for the yuan's value at the end of this year, although more observation of the economy is still needed." The yuan has gained 1.8 percent so far this year, bucking a weakening trend in emerging market currencies, but the bulk of those gains occurred in April and May. After surprisingly weak exports in June, the yuan's rise fizzled out, leading some traders to speculate that the central bank might sought a mild depreciation. But exports recovered sharply in July, and the PBOC was believed to have engineered the yuan's rise to record highs last week. "Factors supporting the yuan depreciation have weakened lately, and we no longer expect policymakers to let the yuan depreciate proactively," a research report by China Merchants Bank said on Tuesday. "The yuan was kept stable even in June when the economy was performing the worst this year," the report said. "We thus forecast that the yuan's exchange rate will retain a trend of measured appreciation or stability."
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1720 6.1705 -0.02 Spot yuan 6.1190 6.1217 +0.04
Divergence from midpoint* -0.86 (pct)
Spot change ytd +1.82 Spot change since 2005 revaluation +35.26
*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 6.1175 +0.03* Offshore non-deliverable 6.2625 -1.45**
*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 - 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 - PBOC's FX assets dropped in June, pointing to possible capital outflows: GRAPHIC: http://link.reuters.com/het22v - 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)