China's c.bank guides yuan to record high, upside may be limited
* PBOC sets midpoint at record high as dlr falls globally
* Yuan strength also attributed to dlr supply, politics
* Yuan may peak at about 6.0/dollar in 2013 - traders
SHANGHAI, Oct 23 (Reuters) - China's yuan traded at a new high versus the dollar on Wednesday, guided by a record midpoint setting by the central bank after the dollar slumped in global markets. Spot yuan traded as high as 6.0855 per dollar after the People's Bank of China (PBOC) set the official midpoint rate at 6.1330, the strongest the currency has been since China established its foreign exchange market in 1994. It retreated slightly to 6.0863 near midday, still up 0.12 percent from Tuesday's close of 6.0935. The dollar index slid in global markets after lacklustre U.S. jobs data, which investors interpreted as increasing the likelihood that the Federal Reserve will continue its monetary stimulus programme. "We think the PBOC allowed the CNY to strengthen vs. the USD in the last 10 days because it was a period of general USD weakness," the Royal Bank of Scotland said in a research note. "Other key currencies also appreciated against the USD." Dealers in the domestic market, however, said they believed the yuan's recent strength was still mostly driven by Chinese corporates steadily unloading dollars. "Corporate dollar sales still dominate," said a trader at a Chinese commercial bank in Shanghai. "With so much dollar supply in the market, you simply cannot expect the yuan to weaken." But after the recent slew of record highs, traders said the yuan was likely to lose upward momentum soon. They expected the yuan's appreciation to stop around the psychological barrier of 6.0 per dollar, and said they believed it was unlikely the currency would effectively break through the level before year end. Traders previously believed the yuan would not be able to pierce the 6.1 barrier, but that line was crossed on Oct. 16. There is also market speculation that the latest wave of yuan appreciation is related to the forthcoming currency report publication on Oct. 15 but was delayed by the partial closure of the U.S. government earlier this month. U.S. critics have said China keeps its currency artificially weak to gain benefits for exporters and have urged the Treasury to label China as a currency manipulator in its biannual reports, but the U.S. administration has not done so in recent years. To cushion U.S. criticism, China has let the yuan appreciate slowly but steadily since the currency's landmark revaluation in 2005, in particular during related political events, such as the publication of the reports or bilateral visits by senior officials to each other's countries.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.1330 6.1395 -0.11 Spot yuan 6.0863 6.0935 -0.12
Divergence from midpoint* -0.76 (pct)
Spot change ytd +2.37 Spot change since 2005 revaluation +35.99
*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 the 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 6.0818 +0.07* Offshore non-deliverable 6.1460 -0.21**
*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 - ANALYSIS-Rally in tightly managed yuan shows China leery of FX reform - CHINA MONEY - PBOC preparing market for more yuan volatility - ANALYSIS-Bullish yuan herd leaves China fundamentals in the dust. - CHINA MONEY - Currency war or no, Beijing doesn't want Asia to take stable.
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 July show reduction in yuan appreciation expectations. GRAPHIC: http://link.reuters.com/tyx74t - Hot money outflows reach record high in July 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)