China's yuan pulls back from record high, more gains seen in 2014
* C.bank uses weaker midpoint to guide yuan off record high
* Yuan will face near-term resistance at 6.05/dollar
* But capital inflows will support yuan in 2014
* Yuan could appreciate 3 pct in new year versus 2.9 pct in 2013
SHANGHAI, Jan 2 (Reuters) - China's yuan pulled back slightly from a record high against the dollar on Thursday after the central bank fixed a weaker midpoint, following the currency's traditional year-end burst of appreciation. Spot yuan touched an intraday high of 6.0507 per dollar on Thursday, narrowly off its all-time high of 6.0506 hit on Tuesday ahead of Wednesday's New Year's Day holiday. It was trading at 6.0510 by midday, slightly up from 6.0539 at Tuesday's close. The People's Bank of China (PBOC) set Thursday's midpoint at 6.0990, slightly weaker than Tuesday's 6.0969. Before Thursday, the PBOC set its midpoint at the strongest level since the Chinese market was established in 1994 for three straight sessions. It typically guides the yuan higher at year end to meet an unofficial full-year appreciation target set at the beginning of the year. "The year-end appreciation is over," said a dealer at a Chinese commercial bank in Shanghai. "Even though there's still a possibility the yuan will stray briefly a few times to new record highs, the currency is likely to see firm resistance at 6.05 percent in coming weeks. "In the longer term, China is likely to continue see capital inflows including trade surplus, keeping the yuan under upward pressure for 2014." Traders said they believe the yuan could appreciate as much as 3 percent in 2014, compared with a 2.9-percent rise in 2013, with the first-quarter pace relatively quick at around 1 percent. These predictions are based on a prospect that the world's second-economy will continue grow around 7.5 percent in 2014, compared with a forecast 7.6 percent in 2013, traders said. But a manufacturing survey released on Thursday showed China's factory activity expanded at its slowest pace in three months in December. The final HSBC/Markit manufacturing Purchasing Managers' Index (PMI) slipped to 50.5 in December from 50.8 in November, weighed down by shrinking export orders.
The onshore spot yuan market at a glance:
Item Current Previous Change (pct) PBOC midpoint 6.0990 6.0969 -0.03 Spot yuan 6.0510 6.0639 +0.05
Divergence from midpoint* -0.79 (pct)
Spot change ytd +0.05 Spot change since 2005 revaluation +36.78 *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 6.0464 +0.08* Offshore non-deliverable 6.1210 -0.47**
*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
(Editing by Kim Coghill)