China's yuan slips, market looks to PBOC for guidance
HONG KONG, Sept 25 (Reuters) - China's yuan eased against the dollar on Wednesday, following a weaker midpoint, and dealers said they were looking for signals from the central bank on whether it would allow further yuan gains. Spot yuan changed hands around 6.1216 near midday, 0.01 percent weaker than Tuesday's close of 6.1210. The People's Bank of China (PBOC) set its official midpoint at 6.1497, down 0.02 percent from Tuesday's 6.1485, reflecting an overnight rally in the dollar. Traders said it seemed difficult for the yuan to stay long below 6.12 per dollar and once it breached that level, there would be banks buying into dollars. The yuan has traded within a very narrow range of about 50 pips most of September. "There is corporate demand to sell dollars, but the market usually becomes cautious near month-end since strong dollar buying demand from big oil companies may arise," said a trader at a Chinese bank in Shanghai. The PBOC set a slew of firmer midpoints in the past month, but it likely intervened through major banks to restrain yuan gains in the spot market. Its intention to keep the "redback" stable has dampened foreign investors' appetite to speculate on fast yuan appreciation in the offshore market and forced them to square long yuan positions. Spot yuan offshore fell to a nearly one-month low of 6.1190 on Wednesday, narrowing its premium over the onshore spot rate to around 30 pips. The market is now waiting for clearer signals from the PBOC on which way it wants the yuan to move, and policies from the Party Plenum in November may offer some direction. The yuan is closer to its equilibrium level and strong appreciation against the dollar from current levels is not expected, HSBC said in a report released on Tuesday, forecasting the currency to stay at 6.12 at the end of 2013.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.1497 6.1485 -0.02% Spot yuan 6.1216 6.121 -0.01%
Divergence from midpoint* -0.46%
Spot change ytd 1.78% Spot change since 2005 revaluation 35.20%
*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 0.05% Offshore non-deliverable 6.1988 -0.79%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
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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 Jacqueline Wong)