Yuan edges up on PBOC guidance, appreciation optimism
* Slightly stronger midpoint reflects global dollar fall
* Bank forex purchases decline, suggesting outflows
* But policy trumps capital flows in setting yuan value
* Yuan seen rising at least until early September
SHANGHAI, Aug 21 (Reuters) - China's yuan edged up on Wednesday after the central bank set a slightly higher official midpoint to reflect the dollar's fall in global markets and also on recent signs that the Chinese currency may appreciate moderately, traders said. Spot yuan changed hands around 6.1225 per dollar near midday, up 0.03 percent from the previous close of 6.1246, after the People's Bank of China (PBOC) set its midpoint at 6.1675, 0.04 percent stronger than Tuesday. 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 peak of 6.1090 last Friday. The yuan continues to strengthen in spite of PBOC data on Tuesday suggesting capital outflows in July. Traders said that government policy had trumped other factors in determining the yuan's value this year. The central bank and commercial banks sold 24.5 billion yuan ($4 billion) worth of foreign exchange on a net basis in July, according to Reuters calculation of central bank data. Banks had sold 41.2 billion yuan worth of foreign exchange in June. While the data does not directly reflect capital flows, it is one of several data points, including trade and foreign investment figures, that show China's cross-border fund flows. "The PBOC's guidance has been the main factor leading the yuan to appreciation this year, while capital flows have played only a minor role," said a trader at a Chinese commercial bank in Shanghai. "This trend is likely to continue for the rest of the year." Traders said the yuan is likely to continue to appreciate until at least early September, when a G20 summit kicks off in Moscow. 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 yuan has gained 1.76 percent so far this year, bucking a weakening trend in emerging market currencies, but the bulk of those gains occurred in April and May, ahead of a slew of major political events, including a G20 meeting and Chinese President Xi Jinping's visit to the United States.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1675 6.1697 +0.04 Spot yuan 6.1225 6.1246 +0.03
Divergence from midpoint* -0.73 (pct)
Spot change ytd +1.76 Spot change since 2005 revaluation +35.18
*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 6.1151 +0.12* Offshore non-deliverable 6.2505 -1.33**
*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 Jacqueline Wong)