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China's yuan steady, eyes on c.bank before Biden visits

Saikat Chatterjee
Wednesday, 27 Nov 2013 | 10:31 PM ET

HONG KONG, Nov 28 (Reuters) - The Chinese yuan was stable against the U.S. dollar on Thursday, with traders watching the central bank for any guidance ahead of a visit by U.S. Vice President Joe Biden. Spot yuan traded at 6.0925 per dollar, a level it has clung to for most of this week and virtually unchanged from the previous close. The People's Bank of China fixed the daily yuan midpoint fixing marginally weaker at 6.1343 per dollar. In the absence of any fresh triggers, traders were wary of chasing the Chinese currency higher, as a short rally in October was cut short by heavy dollar buying by state run banks, likely on the behest of the central bank. However, Biden's trip to Beijing next week may see the Chinese authorities allow the yuan to trade out of its narrow range, in a nod to U.S. complaints that an undervalued yuan gives China an unfair advantage in global trade. Biden is due to visit China, Japan and South Korea during a week-long trip. The central bank has controlled the pace of yuan rises since the currency's landmark revaluation in 2005, and often appeared ready to allow the currency to appreciate during major political events, such as meeting between Chinese and U.S. leaders. Biden's visit has prompted some speculation on betting on more yuan gains in the non-deliverable markets and in the offshore yuan market in Hong Kong. While the spread between the offshore and the onshore yuan has narrowed from a near 2013 high of more than 300 pips tested on Nov. 19, it still remains near a chunky 100 pips. The yuan has appreciated 2.3 percent so far this year, making it the best performing currency in emerging Asia. A poll published last week saw the largest long positions built in the Chinese yuan in about a month, a survey of 13 currency analysts showed, as China's central bank chief Zhou Xiaochuan dangled the prospect of speeding up reforms.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.1343 6.133 -0.02% Spot yuan 6.0925 6.0924 0.00%

Divergence from midpoint* -0.68%

Spot change ytd 2.26% Spot change since 2005 revaluation 35.85%

*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 6.0830 0.16% Offshore non-deliverable 6.147 -0.21%

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

(Editing by Simon Cameron-Moore)