China's yuan at 1-week high as economy seen turning a corner
HONG KONG, Aug 26 (Reuters) - China's yuan rose to a one-week high on Monday as a stronger fixing and signs that the economy is stabilising fuelled a rebound in capital flows towards Chinese assets. The renminbi has proved to be a beneficiary from growing worries about the ability of some Asian policymakers to defend their currencies in the face of spreading aversion towards emerging market assets, particularly towards countries which have deteriorating economic fundamentals. It briefly rose to 6.1176 per U.S. dollar on Monday, its highest since Aug. 19, and is on course for a second consecutive monthly rise. The gains comes at a time when Chinese government bonds have suffered sharp losses with 10-year bond yields briefly hitting their highest level in nearly two years at 4.09 percent last week. "The divergence between the yuan and the onshore bond market reflects the different perceptions investors have towards them," said Ju Wang, senior FX strategist at HSBC in Hong Kong. "As China's external balance sheet is strong, the yuan has served as some sort of a safe haven amid this EM sell-off. But the bond market reflects a moderately cautious monetary policy and the various credit concerns which is pushing yields higher." China's economy is showing clearer signs of stabilization and positive change, helped by some external improvement, and is on track for the 2013 growth target of 7.5 percent, the state statistics bureau said on Monday. In a sign on how investor perception towards the world's second biggest economy has flipped in recent weeks from extreme bearishness towards cautious optimism, an index of China listed companies in Hong Kong has risen by a seventh since early July. That has also filtered towards the offshore yuan bond market where a Bank of China bond index has returned 0.5 percent so far in August, a rare bright spot in terms of returns for emerging market bonds in an otherwise bleak landscape. And there are early signs that capital inflows are set to resume in August after rare outflows in June and July. While concerns of liquidity tightening are rife in the bond market as the quarter-end approaches despite the central bank's cash injection steps, the liquidity in the foreign exchange market has improved substantially in the past couple of weeks due to a rebound in capital outflows, according to a trader at a European bank.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.168 6.171 0.05% Spot yuan 6.1207 6.121 0.00%
Divergence from midpoint* -0.77%
Spot change ytd 1.79% Spot change since 2005 revaluation 35.22%
*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 6.1135 0.12% Offshore non-deliverable 6.2365 -1.10%
*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 Kim Coghill)