GO
Loading...

Yuan breaches key psychological support, hovers at 16-mth low

(Updates to close, adds Reuters poll)

* Corporate sentiment towards yuan sours

* Market expects yuan weakness to linger until mid-May

* PBOC signals preference for stability

* Yuan seen moving mainly between 6.25/28 in coming weeks

SHANGHAI, April 24 (Reuters) - China's yuan weakened past the key psychological support level of 6.25 per dollar late on Thursday, on increased corporate dollar demand and persistently bearish views of the Chinese currency, traders said. Spot yuan fell as low as 6.2509 per dollar in the final few minutes of trade, hitting its lowest level since December 2012 for the second straight day. It trimmed losses slightly to close at 6.2489, down 0.18 percent from Wednesday's close and toppling the previous 16-month low of 6.2466 hit in intraday trade on Wednesday. The People's Bank of China (PBOC) signalled its intention to keep the yuan stable for now by setting its midpoint slightly stronger for the second day. But the incremental strengthening also indicated that the PBOC does not want the Chinese currency firming significantly, traders said. "Lots of stop-loss orders to buy dollars have emerged recently as companies apparently failed to foresee the possibility for the yuan to remain weak for such a long time," said a trader at a Chinese commercial bank in Shanghai. With the currency having now briefly breached 6.25/dollar support, it could move mainly between 6.25-28 per dollar in coming weeks, traders said. A Reuters poll on Thursday showed that sustained weakness in the yuan had soured sentiment on emerging Asian currencies in the past two weeks. Short positions in the yuan slightly increased, according to the survey of 13 analysts.

PBOC VS COMPANIES Still, traders widely expect the PBOC will not take further action to guide the yuan lower or higher until mid-May when China publishes foreign trade data for April. The yuan has depreciated 3.12 percent versus the dollar so far this year after the PBOC guided the currency weaker in February and March to deter speculators from betting on a one-way appreciation. The PBOC never said it was deliberately pushing the yuan down, but currency dealers who spoke to Reuters said they suspected the drop was driven primarily by China's "Big Four" state-owned banks, who started buying up dollars in the domestic foreign exchange market at the central bank's behest. But in contrast to February and March, the central bank is no longer intervening in the market to depress the yuan. In a few cases, state banks have been seen even selling dollars to support the yuan's value in recent weeks, traders said. "The intention for the PBOC to keep the yuan relatively stable for now is increasingly clear, while companies are now pricing the yuan lower," said trader at a European bank in Shanghai. "But the tide could change if China's foreign trade recovers in April, pumping more dollars into the market."

The onshore spot yuan market at a glance:

Item Current Previous Change (pct) PBOC midpoint 6.1589 6.1599 +0.02 Spot yuan 6.2489 6.2376 -0.18

Divergence from midpoint* 1.46 (pct)

Spot change ytd -3.12 Spot change since 2005 +32.45

revaluation

*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 (pct)

Offshore spot yuan 6.2472 +0.03 Offshore non-deliverable 6.2640 -1.68

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 - US warns China over currency depreciation - Capital flows, improving trade to prop up yuan in H2 - Dim sum bonds mark record quarter in Hong Kong

- New quotas rekindle debate over dim sum market's future

- Flood of offshore yuan bonds may spark higher yields

KEY DATA POINTS - Yuan spot performance versus midpoint after trading band widened http://link.reuters.com/jyz38v - China's yuan, other emerging mkt currencies vs dollar http://link.reuters.com/xyd46v - Global currency performance INTERACTIVE GRAPHIC: http://link.reuters.com/cyx46v - China's trade surpluses mainly driven by weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

(Editing by Jacqueline Wong)