Yuan nearly flat, PMI shrugged off; market eyes long term gains
* Flash HSBC PMI indicates economic growth is stabilising
* That favours yuan appreciation in longer term
* Market follows PBOC signal for movements on Thurs
* Traders see yuan appreciating through early Sept
SHANGHAI, Aug 22 (Reuters) - China's yuan was little changed against the dollar on Thursday, despite a survey showing stronger-than-expected growth in China's manufacturing sector, though traders expect that a sustained improvement in the economy will support the yuan in the long term. The Flash HSBC Purchasing Managers' Index rose to 50.1 from July's final reading of 47.7, indicating that activity in China's vast manufacturing sector hit a four-month high due to a rebound in new orders, reinforcing signs of stabilisation in the world's second-largest economy. "The data today shows the performance of the economy is improving. That will favour the yuan's value in longer term," said a dealer at a Chinese commercial bank in Shanghai. "However, the market here mainly watches the central bank's guidance, and the slightly weaker midpoint today set the tone for the yuan to slip." Spot yuan changed hands around 6.1240 per dollar near midday, down 0.01 percent from the previous close of 6.1234, after the People's Bank of China (PBOC) set its midpoint at 6.1698, or 0.04 percent weaker than Wednesday. The PBOC launched a new phase of yuan appreciation two weeks ago, guiding the yuan to a slew of record highs since then, with an all-time peak of 6.1090 being hit last Friday, but the central bank has kept the yuan largely stable this week. Traders said the yuan is likely to resume its appreciation soon, with its general uptrend to last 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 onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1698 6.1675 -0.04 Spot yuan 6.1240 6.1234 -0.01
Divergence from midpoint* -0.74 (pct)
Spot change ytd +1.74 Spot change since 2005 revaluation +35.15
*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 6.1183 +0.09* Offshore non-deliverable 6.2530 -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 Shri Navaratnam)