* Spot yuan dips to 6.7977, caution on appreciation outlook
* Volatility lets banks compete for business in onshore mkt
* One-year dlr/yuan NDFs at 6.6870, imply less yuan rise
* Offshore implied dlr/yuan volatility eases to 4.60 pct
By Lu Jianxin and Koh Gui Qing
SHANGHAI, June 29 The yuan CNY=CFXS weakened
slightly against the dollar in the onshore spot market and
offshore forwards on Tuesday as investors saw little opportunity
for the Chinese currency to appreciate sharply in the near term
after the end of the G20 summit over the weekend.
But the yuan continued moving in a relatively wide range of
57 pips, enough to allow banks to compete for business from
various clients, traders said, although that was slimmer than
last week's unusually hefty average daily range of more than 200
During the two years from mid-2008 until last week, when the
People's Bank of China abandoned the yuan's peg to the dollar,
the yuan rarely moved more than a few pips on any given day.
The PBOC, China's central bank, had used the yuan's daily
mid-point, or reference rate, to set limits on how much the yuan
could move each day.
With the PBOC usually tweaking the mid-point by only one or
two pips each day, banks trading at quotes far from the reference
rate on a given day would end up having to cover their positions
around the mid-point in subsequent days, eventually discouraging
trade that strayed far from the mid-point.
But since the PBOC announced that China would give up the
two-year peg on June 19, the central bank has set the mid-point
in a much broader range, allowing the yuan to trade more widely.
That permits banks to offer more favourable quotes to a
variety of clients and to compete for business, traders said.
Full coverage [ID:nCHINATAKE]
PDF on yuan: r.reuters.com/fuk43m
Yuan microsite: china.thomsonreuters.com/yuan/
Yuan graphics: r.reuters.com/byq23m
-- G20 wrong place for yuan r.reuters.com/vyx64m
"Market expectations of yuan appreciation have cooled since
the G20 summit, with many believing last week's brief spike in
the yuan against the dollar was only a goodwill gesture from
China to the summit," said an Asian bank dealer in Shanghai.
"But the abolition of the peg appears to have resulted in a
wider trading range for the yuan, adding activity to the market."
The PBOC set the mid-point CNY=SAEC at 6.7901 to the dollar
before trading started on Tuesday, down slightly from Monday's
The yuan traded in a range of 6.7942 to 6.7999 before ending
at 6.7977, compared with Monday's close of 6.7967. It was the
second day that the yuan closed slightly lower, after hitting its
highest since the July 2005 revaluation on Friday and rising 0.5
percent in the first week after the depegging.
No one in the market believes, however, that China would let
the yuan appreciate at an annualised pace of more than 20
percent, as it did last week.
Offshore, benchmark dollar/yuan one-year non-deliverable
forwards (NDFs) rose slightly to 6.6870 bid in late trade
compared with Monday's close of 6.6750, with implied yuan
appreciation over that period falling to 1.54 percent versus 1.71
percent, as measured from the PBOC's spot mid-point.
One-year dollar/yuan implied volatility CNY1YO= dropped
slightly to 4.60 percent from Monday's close of 4.65 percent,
reflecting reduced expectations of movement over the next year.
(Editing by Edmund Klamann)