Yuan weakens after dollar rebounds during Chinese holiday

Sun Feb 17, 2013 11:26pm EST

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* Yuan trades at 6.2413/dollar at midday, dropping 0.14 pct
    * C.bank midpoint down 0.04 pct on global dollar strength
    * Mild G20 currency statement weakens sentiment to yuan

    By Lu Jianxin and Gabriel Wildau
    SHANGHAI, Feb 18 (Reuters) - The yuan eased on Monday after
the People's Bank of China (PBOC) set a slightly weaker midpoint
to reflect the dollar's gains n global markets during a long
Chinese holiday last week for the lunar new year, traders said.
    Spot yuan was trading at 6.2413 per dollar near midday,
dropping 0.14 percent from 6.2325 at the close on Feb. 8, the
last trading day before the holiday.
    Trading was sluggish on volume of $5.3 billion on Monday
morning as the market had yet to fully recover from a holiday
mood, traders said.
    Before trading began, the People's Bank of China (PBOC) set
a weaker midpoint, down 0.04 percent from the previous trading
day, reflecting but lagging behind a 0.45 percent rise in the
dollar index during the Chinese holiday.
    At the weekend, a statement issued by G20 policymakers did
not single out Japan for its intervention to devalue the yen
, although it said members should refrain from competitive
devaluations and that monetary policy should be directed only at
price stability and growth. 
    "The G20's decision not to single out Japan for adopting
policies that weakened the yen may mean further softening in
Asian currencies in the near term," said a trader at a Chinese
commercial bank in Shanghai.
    "If this is the case, the yuan may eventually succumb to
pressure for depreciation from other Asian currencies."
    For now, however, the yuan was supported by adequate dollar
supply from China's healthy trade in January, traders said.
    Right before the holiday, customs data showed China's
exports in January grew 25 percent from a year earlier, the
strongest showing since April 2011 and well ahead of market
expectations for a 17 percent rise.
    That helped boost the country's trade surplus to $29.2
billion in January, compared with a forecast of $22.0 billion
and December's $31.6 billion. 
        
  The onshore spot yuan market at a glance: 
 Item               Current   Previous  Change
 PBOC midpoint        6.2816    6.2793   -0.04
                                        
 Spot yuan            6.2413    6.2325   -0.14
                                        
 Divergence from       -0.64                  
 midpoint*                              
 Spot change ytd       -0.18                  
 Spot change since 2005 revaluation     +32.61
 *Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The 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 traded in Hong Kong (CNH)          remains
at a premium to the onshore version. Analysts say this is partly
due to the fact that the offshore yuan is not bound by the
official midpoint, which keeps the exchange rate within 1
percent on either side of the fix.                
    One-year non-deliverable forwards, considered an imperfect
indicator of future expectations for yuan appreciation or
depreciation, were quoted at rates implying depreciation over
the next 12 months.
    
The offshore yuan market at a glance:    
 Instrument                Current     Difference from
                                       onshore (pct) 
 Offshore spot yuan        6.2280      +0.21*
                                       
 Offshore non-deliverable  6.3250      -0.69**
 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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    MARKET DRIVERS
    - G20 promises unlikely to end devaluation debate
 
    - China restrains yuan rise in response to Asian currency 
weakness 
    - Corporates get tough lesson in FX risk from central bank
 
    - Offshore yuan premium returns as market bets on
appreciation 
    - Spot yuan has rallied strongly since late July 2012, and
the PBOC is using its daily midpoint to restrain further
appreciation. GRAPHIC: link.reuters.com/pyx74t
    - China's trade surplus surged in late 2012, but the surge
was mainly due to weak imports rather than strong exports.
GRAPHIC: link.reuters.com/qav68s
    - Corporate yuan purchases still exceed dollar purchases,
but the gap is narrowing. Exporters are converting progressively
smaller portions of their foreign exchange receipts into yuan.
GRAPHIC: link.reuters.com/syx74t 
    - Hot money outflows may be putting downward pressure on the
yuan. GRAPHIC: link.reuters.com/saz74t
    - Despite relatively stable dollar/yuan exchange rate, the
yuan is appreciating on a trade-weighted basis. GRAPHIC: link.reuters.com/sed74t
    
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 (Editing by Simon Cameron-Moore)
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