Yuan trades flat in lowest volatility since 2010
SHANGHAI, Dec 3 (Reuters) - China's yuan remained little changed on Tuesday, with rate volatility remaining at its lowest level in more than three years as the central bank kept the currency on a tight leash. The central bank weakened its official midpoint slightly on Tuesday to 6.1352 per dollar after the dollar index rose mildly in overnight trade, but the spot yuan maintained the flat, range-bound trajectory it has been on since early November. The yuan opened at 6.0926, a mere three pips stronger than Monday's close. Realized market volatility has pancaked this week, setting its lowest point since mid-2010 -- when the People's Bank of China effectively froze the exchange rate in reaction to the global financial crisis -- at Monday's close. Volatility remained within a few pips of Monday's record at midday Tuesday. Traders say the central bank has been acting through intermediary state-owned commercial banks to buy dollars off the market, capping appreciation pressure caused by steady capital inflows. This has resulted in excess yuan-denominated cash pouring into the interbank market, which the central bank has mopped up during open market operations. The yuan overtook the euro in October to become the second-most used currency in trade finance, global transaction services organisation SWIFT said on Tuesday. The market share of yuan usage in trade finance, or Letters of Credit and Collection, grew to 8.66 percent in October 2013. That improved from 1.89 percent in January 2012. The yuan, also known as the renminbi, now ranks behind the U.S. dollar, which remains the leading currency with a share of 81.08 percent. The yuan remained the 12th payments currency of the world, with a slightly decreased share of 0.84 percent compared with 0.86 percent in September.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.1352 6.1329 -0.04% Spot yuan 6.0926 6.0929 0.00%
Divergence from midpoint* -0.69%
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
Instrument Current Difference
Offshore spot yuan * 6.0874 0.08% Offshore non-deliverable 6.153 -0.29% forwards **
*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)