China's yuan slips on state banks' dollar purchases

Wednesday, 6 Nov 2013 | 11:31 PM ET

* Market sees lots of dollar supply on corporate sales

* Major state-owned banks absorb surplus dollars

* PBOC uses official midpoint to indicate yuan stability

* Yuan to move around 6.1/dlr in coming weeks - traders

SHANGHAI, Nov 7 (Reuters) - China's yuan edged lower against the dollar on Thursday as major state-owned banks absorbed surplus dollars, while the market overall still sees a lot of dollar supply due to companies' selling of the greenback, traders said. "There were signs that major banks bought dollars after the yuan reached 6.09/dollar in early trade," said a dealer at a Chinese commercial bank in Shanghai. "It appears the banks have taken cues from the recent central bank signal to keep the yuan stable." Spot yuan traded at 6.0939 per dollar near midday, down 0.02 percent from Wednesday's close of 6.0927 after it hit an intraday high of 6.0900 in early trade. The People's Bank of China (PBOC) fixed its midpoint at 6.1450 on Thursday, slightly stronger than Wednesday's midpoint of 6.1475. However, the PBOC has generally set a slew of weaker midpoints recently, guiding the Chinese currency away from the string of all-time highs touched in mid-October. As the yuan's movements are mainly guided by the central bank, traders expect the yuan to trade narrowly around 6.1 per dollar in the coming weeks, barring major market-moving news.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.1450 6.1475 +0.04% Spot yuan 6.0939 6.0927 -0.02% Divergence from midpoint* -0.83% Spot change ytd 2.24% Spot change since 2005 revaluation 35.82%

*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 6.0839 0.16%* Offshore non-deliverable 6.1570 -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 - CHINA MONEY - PBOC hopes to drain sloppy money without raising primary rates as growth revives - 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

(Reporting by Lu Jianxin and Pete Sweeney; Editing by Chris Gallagher)