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China's yuan steadies on suspected intervention by PBOC

Michelle Chen
Thursday, 14 Nov 2013 | 11:02 PM ET

HONG KONG, Nov 15 (Reuters) - China's yuan steadied against the dollar on Friday on suspected central-bank intervention via big state-owned banks to stem the currency's rise after an early bout of dollar-selling by companies. Traders expect the yuan to stay in a tight range and 6.09 remains a psychological barrier in the near term until the People's Bank of China (PBOC) gives a clear signal to allow a fresh round of appreciation. Spot yuan traded at 6.0912 per dollar near midday, up 0.02 percent from Thursday's close of 6.0922. The PBOC fixed the yuan's midpoint at 6.1351, 0.06 percent weaker than the previous day's 6.1315. "There was strong dollar selling after the opening, which pushed the yuan to 6.0911, but then big state-owned banks came in to buy dollars immediately," said a trader at a Chinese bank in Shanghai. "We thought the central bank would let the yuan appreciate more toward the year-end, but sustaining interventions made us curious where it would like it to move," the trader said. The Chinese currency has risen more than 2 percent so far this year and its steady rise has attracted capital flows from global investors who have sought shelter from other volatile currencies. Capital inflows to the "redback" may be further supported given that the U.S. is likely to continue its ultra-easy monetary policy until a durable economic recovery is in place that can sustain job creation. Fed Vice Chair Janet Yellen on Thursday robustly defended the Federal Reserve's bold steps to spur economic growth, calling efforts to boost hiring an "imperative" at a hearing into her nomination to become the first woman to lead the U.S. central bank. Market participants are also waiting for more details of China's reform plans, which are usually announced a week after the conclusion of the Communist Party's third plenum on Tuesday.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.1351 6.1315 -0.06% Spot yuan 6.0912 6.0922 0.02% Divergence from midpoint* -0.72% Spot change ytd 2.28% Spot change since 2005 revaluation 35.88%

*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 6.0779 0.22%* Offshore non-deliverable 6.163 -0.45%**

forwards

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .

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

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(Editing by Chris Gallagher)