China's yuan up on data relief, upbeat official comments; set for 2nd quarterly gain

SHANGHAI, March 31 (Reuters) - China's yuan rose against the dollar on Friday and looked set for a second quarterly gain, as market sentiment was supported by better-than-expected manufacturing data and on upbeat official comments on the economic outlook. China's manufacturing activity beat market expectations in March, despite expanding at a slower pace, official data showed on Friday, while activity in the services sector grew at the fastest pace in nearly 12 years. "The strong PMI figures echoed Premier Li's upbeat remark on the growth outlook in March at his speech yesterday and propel China reopening trade momentum," said Ken Cheung, chief Asian FX strategist at Mizuho Bank. China's economic performance has improved in March from the first two months and the country will expand domestic demand and consolidate its economic recovery, Premier Li Qiang said at an economic forum in Boao. The dollar's slightly subdued tone on the day also underpinned the yuan, with the greenback set for its second quarterly loss.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8717 per dollar, 169 pips firmer than the previous fix of 6.8886. The spot yuan opened at 6.8550 per dollar and was changing hands at 6.8584 at midday, 126 pips firmer than the previous late session close. If the yuan finishes the late night session at the midday level, it would have gained 0.6% to the dollar in January to March period, booking the second straight quarterly gain. Some analysts said financial markets were still assessing the impacts of the global banking crisis, which offered some support for Asian currencies including the yuan. "While markets sift through the extent and breadth of the damage from the banking stresses, we think Asian currencies can continue to outperform the dollar, euro and other lower-yielding emerging market (EM) currencies," analysts at Goldman Sachs said in a note. "We continue to see USD/CNY move towards our 3-month forecast of 6.80, which should also provide an anchor for non-Japan Asian (NJA) currencies." By midday, the global dollar index was steady at 102.164 from the previous close of 102.144.

The one-year forward value for the offshore yuan traded at 6.6974 per dollar, indicating a roughly 2.40% appreciation within 12 months. The yuan market at 0255 GMT:

ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8717 6.8886 0.25% Spot yuan 6.8584 6.871 0.18% Divergence from -0.19%
midpoint*
Spot change YTD 0.61% Spot change since 2005 20.68% revaluation

Key indexes:
Item Current Previous Change

Dollar index 102.164 102.144 0.0

*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 2% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET

Instrument Current Difference from onshore Offshore spot yuan 6.8581 0.00%
*
Offshore 6.7016 2.54% non-deliverable
forwards
**

*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
(Reporting by Li Gu and Brenda Goh Editing by Shri Navaratnam)

Reuters

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