Yuan edges up as dollar stages correction in Asian trade

Thu Feb 21, 2013 11:49pm EST

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* Yuan trades at 6.2387/dollar, up 0.03 pct
    * Dollar index falls 0.3 pct in Asian morning trade
    * PBOC sets midpoint 0.4 pct weaker on overnight dlr rise
    * Market sees c.bank keeping yuan stable for now

    By Lu Jianxin and Pete Sweeney
    SHANGHAI, Feb 22 (Reuters) - The yuan rose slightly on
Friday morning, with a correction of the dollar in global
markets offsetting a weaker midpoint fixed by the People's Bank
of China (PBOC), traders said.
    Spot yuan was trading at 6.2387 per dollar, up
0.03 percent from Thursday's close, as the dollar index 
depreciated 0.3 percent in Asian morning trade.
    Trading was sluggish on volume of $4.8 billion, down from
Thursday morning's thin $5.05 billion, partly because recent
global dollar volatility has made many companies take a
wait-and-see attitude towards the yuan's long-term value,
traders said.
    Before trading began, the PBOC set the yuan's midpoint at
6.2871, 0.04 percent weaker than Thursday's midpoint of 6.2846,
a move traders said reflecting an overnight dollar rally.
    "Many players stayed on the sidelines today as global dollar
uncertainties dampened interest in yuan/dollar trading," said a
dealer at a U.S. bank in Shanghai.
    "The market sees the PBOC keeping the yuan relatively stable
for now, but players have become increasingly dubious that the
yuan will continue to appreciate in the longer term."
          
  The onshore spot yuan market at a glance: 
 Item               Current   Previous  Change
 PBOC midpoint        6.2871    6.2846   -0.04
                                        
 Spot yuan            6.2387    6.2405   +0.03
                                        
 Divergence from       -0.77                  
 midpoint*                              
 Spot change YTD       -0.13                  
 Spot change since 2005 revaluation     +32.66
 *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 but the premium has recently
narrowly sharply due to the global dollar's strength.
    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        6.2375      +0.02*
                                       
 Offshore non-deliverable  6.3220      -0.56**
 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 
    - 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 Kim Coghill)
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