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China c.bank sets record midpoint, but market stays flat

Pete Sweeney
Wednesday, 4 Dec 2013 | 12:35 AM ET

SHANGHAI, Dec 4 (Reuters) - The People's Bank of China (PBOC) set a record-high yuan midpoint in the run-up to a state visit by U.S. Vice President Joe Biden, but the rise had negligible impact on trading. The central bank set the official fixing at 6.1300 on Wednesday morning, up 0.08 percent from Tuesday and the strongest it has been against the dollar since the creation of China's foreign exchange market. The spot market, however, continued to price the traded yuan in the same range it has for the last month, hovering around 6.09 per dollar. Traders say they believe the central bank is acting through intermediary state-owned banks to hold the rate stable through the end of the year, ordering them to buy up dollars in the market to rein in appreciation pressure. The Hong Kong market has, therefore, continued to trade offshore yuan at a premium to the onshore market, indicating traders expect the central bank to allow the yuan to resume appreciating at some point. CNH changed hands at 6.0831 per dollar at midday, 0.14 percent stronger than the onshore rate.

The onshore spot yuan market at a glance:

Item Current Previous Change PBOC midpoint 6.13 6.1352 0.08% Spot yuan 6.0919 6.0924 0.01%

Divergence from midpoint* -0.62%

Spot change ytd 2.27% Spot change since 2005 revaluation 35.86%

*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 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 offshore yuan market at a glance:

Instrument Current Difference

from onshore

Offshore spot yuan * 6.0831 0.14% Offshore non-deliverable 6.147 -0.28% forwards **

*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 central bank suggests faster tempo for freeing yuan

- China investors face bumpy ride as reform speculation intensifies - Unprecedented securitisation plan aims to slow rapid money growth - CHINA MONEY - PBOC preparing market for more yuan volatility

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

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(Editing by Jacqueline Wong)