China's yuan eases, set for its fifth week of losses

SHANGHAI, July 13 (Reuters) - The Chinese yuan eased against
the U.S. dollar on Friday, on course for its fifth week of
losses as markets braced for the impact of tit-for-tat
U.S.-China trade tariffs.
Although the yuan hovered above the psychological 6.7 per
dollar level, it is set for its longest weekly losing streak in
two years.
China's better than forecast June exports had limited impact
on the yuan, but the country's record trade surplus with the
United States could keep tensions high between the two countries
and fuel more volatility in Chinese financial markets.

Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.6727 per dollar, only 1
pip weaker than the previous fix of 6.6726.
Friday's official guidance rate came in largely matched
market forecasts.
In the spot market, the onshore yuan opened at
6.6582 per dollar and was changing hands at 6.6735 at midday, 5
pips weaker than the previous late session close and 0.01
percent softer than the midpoint.
If the onshore spot yuan finishes the late night session at
the midday level, it would have lost 0.37 percent for the week.
It would be the longest downdraft since July 2016.
Investors worry that the Trump administration's threat to
impose more tariffs on Chinese goods could disrupt its shipments
and global supply chains in a blow to investment and growth.
"The yuan remains at the centre of all the action, but with
further signs of policy easing on the cards given the economic
slowdown has been much deeper rooted than feared, markets will
continue to buy dips until a definitively positive shift in
trade war sentiment," Stephen Innes, head of trading for Asia
Pacific at OANDA said in a note on Friday.
He added that broader global markets continued to remain in
wait-and-see mode for further details on how China might
retaliate on trade.

TRADE SPAT DOMINATES
Traders said the market remained cautious over the trade
dispute between Beijing and Washington on Friday, while
investors have largely digested the news that the Trump
administration might slap 10 percent tariffs on an extra $200
billion worth of Chinese imports.
A trader at a Chinese bank in Shanghai said the market was
"not as panicky" as how it was a week ago when the first batch
of tariff on $34 billion worth of goods kicked in.
A second trader at a Chinese bank said the market remained
wary of the 6.7 per dollar threshold and refrained from testing
lows aggressively as it could prompt official intervention.
Separately, liquidity conditions in the money market
remained "very loose", traders said.
The PBOC said in a statement it lent 188.5 billion yuan
($28.27 billion) to financial institutions on Friday via its
one-year medium-term lending facility (MLF) with rates
unchanged.
The fresh fund injection via MLF effectively rolled over the
same amount of such loans maturing on the same day.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 95.44, firmer than the previous day's
95.36.
The global dollar index rose to 94.882 from the
previous close of 94.806.
The offshore yuan was trading 0.23 percent weaker
than the onshore spot at 6.6892 per dollar.
Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan's value, traded
at 6.7483, 1.12 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot
rate.

The yuan market at 0358 GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.6727 6.6726 0.00%

Spot yuan 6.6735 6.673 -0.01%

Divergence from 0.01%
midpoint*
Spot change YTD -2.50%
Spot change since 2005 24.02%
revaluation

Key indexes:

Item Current Previous Change

Thomson 95.44 95.36 0.1
Reuters/HKEX
CNH index
Dollar index 94.882 94.806 0.1



*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 percent from official midpoint rate it sets each
morning.

OFFSHORE CNH MARKET

Instrument Current Difference
from onshore
Offshore spot yuan 6.6892 -0.23%
*
Offshore 6.7483 -1.12%
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.
.

($1 = 6.6687 Chinese yuan)

(Reporting by Winni Zhou and John Ruwitch
Editing by Jacqueline Wong)


2018-07-13 06:58:42

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