China's yuan steady, seen moving around 6.1/dollar in short term

Lu Jianxin and Pete Sweeney
Monday, 4 Nov 2013 | 1:12 AM ET

* Yuan made biggest weekly loss since June 2012 last week

* Consolidates after slew of record highs set in October

* PBOC still dominates market, guiding yuan up and down

* Dollar index a factor, not the most important

HONG KONG, Nov 4 (Reuters) - China's yuan was little changed against the dollar on Monday after the central bank set a slightly weaker midpoint for the sixth consecutive day, signalling its intention to keep the yuan stable for now, traders said. The Chinese currency has generally been consolidating after it hit a slew of record highs in October, with the People's Bank of China (PBOC) playing a major role in guiding the yuan's October appreciation and the ensuing correction, traders said. The yuan, supported by decent dollar supply in the domestic market, is now seen moving narrowly around 6.1 versus the dollar in coming weeks, barring major market-moving news, traders said. "The yuan's movements continued a pattern of a few steps forwards, a step backward, by which regulators have guided the yuan to appreciate in a slow but steady manner for many years," said a trader at a Chinese commercial bank in Shanghai. "Typically, the yuan will be held stable in November and the first part of December before it will generally see a round of slight appreciation in the second half of December. The pattern prevailed over the past few years and is expected to persist this year." Spot yuan traded at 6.0991 near midday, almost flat from Friday's close of 6.0995. The PBOC fixed its official midpoint at 6.1482, slightly down from Friday's 6.1452. Although the PBOC's guidance appears to generally track the dollar's global movements, traders said its decision has always focused on China's own considerations, with the dollar's value a factor but not the paramount influence. While the yuan dropped 0.26 percent last week in its biggest weekly fall since a 0.4 percent fall for the week ended on June 1, 2012, the domestic market still has an abundance of dollar supply floating around, ensuring the currency has little room to fall in the medium term, traders said.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.1482 6.1452 -0.05% Spot yuan 6.0991 6.0995 +0.01% Divergence from midpoint* -0.80% Spot change ytd 2.15% Spot change since 2005 revaluation 35.70%

*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.


The offshore yuan market at a glance:

Instrument Current Difference from onshore Offshore spot yuan 6.0888 0.17%* Offshore non-deliverable 6.1600 -0.19%**


*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 Shri Navaratnam)