China's yuan set for monthly gain, mild appreciation seen ahead

HONG KONG: China's yuan steadied against the dollar on Tuesday but looked set for a second consecutive monthly gain in August as investors turn more optimistic toward the currency amid signs the economy is stabilising.

The yuan has gained 1.7 percent so far this year, the only currency to appreciate against the dollar among Asian emerging market currencies and bucking a weakening trend in the region.

Spot yuan changed hands around 6.1220 per dollar near midday, up 0.01 percent from the previous close of 6.1225, after the People's Bank of China (PBOC) set its midpoint at 6.1688, or 0.1 percent weaker than Monday.

"We see clients selling dollars in the market today and their motives to sell dollars recently become strong when the yuan spot moved to 6.1200-6.1250," said a trader in Shanghai.

But the central bank does not want the yuan to appreciate too fast, especially amid the backdrop of widespread weakness in the emerging market currencies, the trader said.

With a slew of positive economic indicators coming out during the past few weeks in China, many market players believe the world's second-largest economy has bottomed and have become cautiously optimistic toward the yuan.

Deutsche Bank revised up its forecast for China's third and fourth quarter gross domestic product (GDP) growth to 7.7 and 7.8 percent, respectively, from the previous 7.5 and 7.7 percent last Thursday.

"We expect a modest, short-term correction of the CNY spot," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole.

"The appreciation trend will resume in Q4, and USD/CNY will end 2013 at 6.10, barely below current levels."

Beijing has refrained from relying on large-scale stimulus to shore up its economy this year, and instead focused on more targeted measures and structural reforms to improve the quality of growth.

China's Vice Finance Minister Zhu Guangyao said on Tuesday there was no need for the Chinese government to stimulate its economy and was confident of achieving the 7.5 percent growth rate target in 2013.