China's yuan rises vs dollar on c.bank guidance, approaches record high
* Midpoint suggests PBOC intends to let yuan keep rising
* Possibly gesture toward G20 summit in Russia this week
* Longer term, yuan supported by China's improving economy
SHANGHAI, Sept 2 (Reuters) - China's yuan edged up against the dollar on Monday, coming within sight of record highs after the central bank set a slightly stronger fixing that was seen reflecting official intentions to let the Chinese currency appreciate for now. Spot yuan changed hands at 6.1166 per dollar at midday, up 0.05 percent from the previous close, after the People's Bank of China (PBOC) set its midpoint at 6.1702, up from Friday's 6.1709. The currency is now within arm's reach of 6.1090 versus the dollar, its most recent all-time high. "The midpoint's strength today, albeit minor, is not backed signal that the PBOC wants the yuan to rise for now," said a dealer at a European bank in Shanghai. "The market has taken the PBOC's cue, but believes the central bank's move may be temporary, aimed at the G20 summit to be held in Russia later this week." The Chinese government has traditionally let the yuan appreciate ahead of major international political events, which traders suggest is a preemptive gesture to trading partners who argue the currency is still undervalued. Many traders, however, believe the yuan's potential for further appreciation will be limited in the near future, given sweeping depreciation in other Asian currencies that compete with China for a share of global exports. China's factory activity expanded for the first time in four months in August as domestic demand rebounded, a private survey showed on Monday, the latest sign that the world's second-largest economy may have avoided a sharp slowdown. The final Markit/HSBC Purchasing Managers' Index (PMI) climbed to 50.1 in August, up sharply from July's 47.7 and in line with last week's flash preliminary reading. "While China's economy is just recovering from its recent troughs in the second quarter, it is not strong enough to support another round of yuan appreciation in particular with the weakening of most Asian currencies looming in the background," said a dealer at a Chinese commercial bank in Shanghai. The yuan has gained 1.86 percent so far this year, bucking a weakening trend in emerging market currencies. The bulk of those gains, however, 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 6.1702 6.1709 +0.01 Spot yuan 6.1166 6.1195 +0.05
Divergence from midpoint* -0.87 (pct)
Spot change ytd +1.86 Spot change since 2005 revaluation +35.31
*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 6.1139 +0.04* Offshore non-deliverable 6.2325 -1.00**
*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)