Yuan down slightly, trading volume trimmed by dollar strength

Thu Feb 21, 2013 9:30am GMT

* Yuan closes at 6.2405/dollar, down 0.05 pct
    * Dollar index holds firm after rising 0.8 pct overnight
    * China central bank fixes midpoint 0.07 pct weaker
    * Seen to curb yuan fall/rise amid global uncertainties

    By Lu Jianxin and Pete Sweeney
    SHANGHAI, Feb 21 (Reuters) - The yuan closed down slightly
on Thursday, tracking a global dollar rally, but losses were
limited amid signs that the People's Bank of China (PBOC) will
hold the Chinese currency mostly stable due to uncertainties in
global currency markets, traders said.
    Spot yuan closed at 6.2405 per dollar, down 0.05
percent from 6.2376 at Wednesday's close. Volume fell to $13.5
billion from Wednesday's heavy $21.04 billion, partly because
the dollar strength dampened enthusiasm for firms to sell
dollars, traders said.
    Before trading began, the PBOC set the yuan's midpoint at
6.2846, 0.07 percent weaker than Wednesday's midpoint of 6.2804,
as the PBOC responded to a 0.8 percent rally in the dollar index
 overnight.
    Caution has increased since the weekend, when a statement 
by G20 policymakers did not single out Tokyo for its polices
that have depressed the yen. 
    The market largely interpreted the G20 statement as de facto
acceptance of Japan's recent expansionary monetary policies.
 
    "The PBOC typically tries to control the pace of yuan
appreciation and depreciation during global financial and
economic uncertainties," said a trader at a major Chinese
commercial bank in Shanghai.
    "Recent midpoints have again shown signs of such moves by
the PBOC, and that understanding has helped kept the yuan
relatively stable these days."
          
  The onshore spot yuan market at a glance: 
 Item               Current   Previous  Change
 PBOC midpoint        6.2846    6.2804    0.07
                                        
 Spot yuan            6.2405    6.2376    0.05
                                        
 Divergence from       -0.70                  
 midpoint*                              
 Spot change YTD       -0.16                  
 Spot change since 2005 revaluation     +32.63
 *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 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        6.2400      +0.01*
                                       
 Offshore non-deliverable  6.3250      -0.63**
 forwards                              
 
*Premium for offshore spot over onshore 
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
. 
    
    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - U.S. dollar holds gains as Fed minutes fuel withdrawal
symptoms. 
    - 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 Richard Borsuk)
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