Trade woes push yuan to 2-1/2-week low but intervention fears cap losses

SHANGHAI, Sept 12 (Reuters) - The yuan weakened to its
lowest level against the dollar in 2-1/2 weeks on Wednesday as
Sino-U.S. trade tensions continued to weigh on Chinese financial
markets.
China told the World Trade Organization (WTO) on Tuesday it
wanted to impose $7 billion a year in sanctions on the United
States in retaliation for Washington's non-compliance with a
ruling in a dispute over U.S. dumping duties.
Prior to the market opening on Wednesday, the People's Bank
of China set the midpoint rate at 6.8546 per dollar,
58 pips weaker than the previous fix 6.8488.
The official guidance rate, though the weakest since Aug.
24, was stronger than market forecasts. The fixing was 18 pips
firmer than Reuters' estimate of 6.8564 per dollar.
In the spot market, the onshore yuan opened at
6.8740 per dollar and eased to a low of 6.88 at one point, the
weakest since Aug. 24.
But it later pared losses and was changing hands at 6.8745
at midday, 26 pips weaker than the previous late session close
and 0.29 percent softer than the midpoint.
Traders said markets were wary authorities may intervene
after the yuan hit the 6.88 level.
One trader at a Chinese bank noted that stabilising measures
by the PBOC in August were all rolled out when the spot rate
traded at around 6.9.
Market players also continued to closely watch the yuan's
moves in offshore markets for any signs of intervention. The
offshore spot hit a low of 6.8888 in morning trade and
was at 6.8864 by midday.
Gao Qi, an FX strategist at Scotiabank in Singapore, said
the PBOC was expected to tighten offshore yuan liquidity further
to defend the exchange rate if necessary.
Large state-run Chinese banks have been swapping dollars for
yuan in offshore forward markets for over a week, sopping up
supply and raising the cost of shorting the Chinese currency.

"USD/CNH will continue trading at a premium to USD/CNY that
is expected to fluctuate in a range of 6.70-6.90 in the weeks
ahead, with the central bank's efforts managing market
expectations of the yuan exchange rate," Gao said in a note on
Wednesday.
"Meanwhile, if there is a positive progress in the
U.S.-China trade dispute, it will improve risk sentiment across
the markets."
Analysts widely believe that Chinese authorities will
continue to keep a tight grip on the currency, even if trade
pressure intensifies.
Jameel Ahmad, global head of currency strategy and market
research at FXTM, expects the authorities will continue to
prevent the yuan from breaching 7 per dollar, a level last seen
during the global financial crisis.
"Seven is a threat to capital outflows, psychologically," he
said.
However, some market watchers say all bets on currency
stability may be off if President Donald Trump follows through
on a threat to slap tariffs on nearly all Chinese imports to the
United States. The next round is expected to be triggered at any
time.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 93.25, weaker than the previous day's
93.34.
The global dollar index fell to 95.197 from the
previous close of 95.249.
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 6.9765, 1.75 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot
rate.

The yuan market at 0445 GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.8546 6.8488 -0.08%

Spot yuan 6.8745 6.8719 -0.04%

Divergence from 0.29%
midpoint*
Spot change YTD -5.35%
Spot change since 2005 20.39%
revaluation

Key indexes:

Item Current Previous Change

Thomson 93.25 93.34 -0.1
Reuters/HKEX
CNH index
Dollar index 95.197 95.249 -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 6.8864 -0.17%
*
Offshore 6.9765 -1.75%
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 Winni Zhou and John Ruwitch; Editing by Kim
Coghill)


2018-09-12 07:19:03

© 2018 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.