Yuan edges higher on midpoint signal, focus on PBOC guidance
* PBOC midpoint implies yuan may soon resume appreciation
* Market remains relying on PBOC for appreciation guidance
* Dollar supply adds weight to yuan rise expectations
* New phase of yuan rise seen lasting until early Sept
SHANGHAI, Aug 19 (Reuters) - China's yuan rose slightly on Tuesday after the central bank set its official midpoint nearly flat, fueling expectations that the currency will soon resume appreciation, traders said. Spot yuan changed hands around 6.1219 per dollar near midday, 0.02 percent up from Monday's close of 6.1229, after the People's Bank of China (PBOC) set its midpoint at 6.1697, only 7 pips softer than Monday. "We feel the yuan is still on a measured uptrend," said a dealer at a European bank in Shanghai. "But the yuan's rises this year have largely been guided by the PBOC, and the market remains reliant on the central bank for guidance on appreciation." In addition, market players report heavier corporate dollar sales compared to purchases, a sign of continued capital inflows into China, adding further weight to appreciation expectations. The PBOC launched a new phase of yuan appreciation about two weeks ago, and the currency has hit a slew of record highs since then, touching an all-time high of 6.1090 last Friday. The yuan is likely to continue to appreciate in a measured way at least until early September, when a G20 summit kicks off in Moscow, traders said. China has traditionally let the yuan appreciate ahead of major international political events in a gesture to trading partners who feel the yuan is undervalued.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1697 6.1690 -0.01 Spot yuan 6.1219 6.1229 +0.02
Divergence from midpoint* -0.77 (pct)
Spot change ytd +1.77 Spot change since 2005 revaluation +35.19
*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 6.1176 +0.07* Offshore non-deliverable 6.2545 -1.36**
*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 Kim Coghill)