Yuan flat; gains seen resuming in 2014 on trade surplus, inflows

midday, unchanged from Friday's close.
Sunday, 22 Dec 2013 | 11:46 PM ET

* PBOC sets midpoint slightly stronger; no impact on trading

* Traders see yuan steady near 6.07/dollar through year-end

* Trade surplus, hot money support appreciation in 2014

SHANGHAI, Dec 23 (Reuters) - China's yuan held steady on Monday, with the market believing the central bank has achieved its unofficial yuan appreciation target for 2013 and will keep it stable till the year-end. Spot yuan changed hands at 6.0713 yuan per dollar The People's Bank of China (PBOC) set its daily midpoint 0.06 percent stronger at 6.1161 but traders said the small change had little impact on trading. The market believes that the PBOC has internal targets for annual yuan rises since the currency's landmark revaluation in 2005. That is to balance international pressure to let the yuan appreciate against the needs of domestic manufacturers who complain that it hurts export competitiveness. "As the year-end nears, the potential for the yuan to rise sharply again is limited, given that the PBOC typically takes a gradualist approach to appreciation," said a trader at a Chinese commercial bank in Shanghai, adding that the market believes the yuan will hold near 6.07 through the year-end. The yuan has risen 2.62 percent against the dollar so far this year. Looking ahead, China's resilient trade surpluses and healthy capital inflows will continue to support appreciation next year, traders said, while the central bank will continue using its midpoint to moderate the pace of gains.

The onshore spot yuan market at a glance:

Item Current Previous Change (pct) PBOC midpoint 6.1161 6.1196 0.06 Spot yuan 6.0713 6.0713 0.00

Divergence from midpoint* -0.73 (pct)

Spot change ytd 2.62 Spot change since 2005 revaluation 36.32

*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.


The offshore yuan market at a glance:

Instrument Current Difference from onshore


Offshore spot yuan 6.0702 0.02* Offshore non-deliverable 6.1360 -0.32**


*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 - Hot money distorts China's exports as speculators seek to cash in on yuan, rate reforms - China central bank suggests faster tempo for freeing yuan

- China investors face bumpy ride as reform speculation intensifies - CHINA MONEY - PBOC preparing market for more yuan volatility

KEY DATA POINTS - Hot money returned to China in Sept, Oct after two months of outflows GRAPHIC: http://link.reuters.com/saz74t - 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 - Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t


(Reporting by Lu Jianxin and Gabriel Wildau; Editing by Jacqueline Wong)