Yuan little changed, PBOC seen holding it steady for rest of year
SHANGHAI, Dec 2 (Reuters) - China's yuan traded flat on Monday after the central bank left the guidance rate effectively unchanged, resulting in another day of tightly range-bound trade. The foreign exchange market has been torpid in recent weeks, with the exchange rate hardly varying in the course of a given day, which traders say is due to ongoing intervention by major state-owned banks to hold back the yuan in the face of appreciation pressure. The People's Bank of China (PBOC) set the official guidance rate at 6.1329 per dollar on Monday morning, four points weaker than Friday's close, tracking the dollar index which remained similarly flat. The spot rate was also flat at 6.0928, compared to 6.0932 per dollar on Friday. Traders expect the PBOC to hold the rate relatively steady through the end of the year. Regulators have said they intend to further liberalise the forex market, including widening the trading band -- which currently holds the traded exchange rate within 1 percent above or below the official fix. However, analysts point out that it is difficult for the bank to do so in the face of sustained appreciation pressure. To hold the yuan within range of the midpoint, large banks must buy up excess dollars on the market on behest of the PBOC. This keeps the yuan from appreciating and sustains liquidity, but also further encourages bullish sentiment as it reduces downside risk for speculators, who assume the rate will rise further once the PBOC unleashes the market. The offshore market continues to price in a premium, with yuan traded in Hong Kong (CNH) changing hands at 6.0858 per dollar, 0.12 percent stronger than the onshore rate.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.1329 6.1325 -0.01% Spot yuan 6.0928 6.0932 0.01%
Divergence from midpoint* -0.65%
Spot change ytd 2.26% Spot change since 2005 revaluation 35.84%
*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
Offshore spot yuan 6.0858 0.12% * Offshore 6.15 -0.28%
Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
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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 behavior reflects yuan appreciation expectations. GRAPHIC: http://link.reuters.com/tyx74t - Hot money returned to China in Sept after two months of outflows 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)