Yuan slips as Trump ramps up trade pressure on China

SHANGHAI, Sept 10 (Reuters) - China's yuan weakened against
the U.S. dollar on Monday after U.S. President Donald Trump
raised the stakes in the heated trade dispute with Beijing.
Trump warned on Friday he was ready to slap tariffs on
virtually all Chinese imports into the United States,
threatening duties on another $267 billion of goods on top of
$200 billion in imports primed for levies in coming days.
The moves would sharply escalate Trump's trade war with
Beijing over his demands for major changes in economic, trade
and technology policy.
"We do not expect Chinese authorities to retaliate with
competitive devaluation," Betty Wang, senior China economist at
ANZ said in a note on Monday.
"Since the Chinese government is vigilant on financial
volatility, we believe the authorities will continue to
stabilise the yuan exchange rate by all means in the near
future, manifested through a bias in its daily fixing."
Prior to the market opening on Monday, the People's Bank of
China (PBOC) lowered the midpoint rate less than
expected to 6.8389 per dollar, 177 pips or 0.26 percent weaker
than the previous fix 6.8212.
Although Monday's official guidance rate was the weakest
since Aug.27, it was 88 pips firmer than Reuters' estimate of
6.8477 per dollar.
Traders said the stronger-than-expected fixing was a clear
signal from the authorities, showing their determination to keep
the yuan steady.
In the spot market, the onshore yuan opened at
6.8494 per dollar. It was changing hands at 6.8598 at midday,
106 pips weaker than the previous late session close and 0.31
percent softer than the midpoint.
Its offshore counterpart also weakened and was at
6.8726 by midday.
The intensifying trade dispute between Washington and
Beijing has pressured the yuan, but some currency traders
believe continued tightness in offshore liquidity is keeping it
from weakening much further.
Some market participants were also wary the central bank may
act more forcefully to stem losses if the yuan falls to around
6.9 per dollar again.
Hong Kong's overnight yuan borrowing cost rose further on
Monday as some large state-run Chinese banks swapped dollars for
yuan in the offshore forwards market.
Big state banks were seen swapping dollars for yuan in
tenors ranging from one-month to one year. These operations,
which traders said have persisted for over a week, effectively
tighten offshore yuan liquidity and raise the cost of shorting
the Chinese currency.
The CNH Hong Kong Interbank Offered Rate benchmark (CNH
Hibor), set by the city's Treasury Markets Association (TMA),
was fixed at 3.82633 percent for overnight contracts
on Monday, compared with Friday's 3.13933 percent,
which was the highest level since June 20, 2018.
The implied overnight deposit rate for the offshore yuan
CNHONID=R rose to a high of 5.098 percent on Monday morning,
compared with the previous close of 1.775 percent.
Former PBOC Governor Zhou Xiaochuan told CNBC in an
interview on Friday that the direct impact on China's economy
from the trade war "is not very large".
He added that with economic growth of 6 percent a year and a
floating exchange rate, China was well placed to withstand
external shocks.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 93.52, firmer than the previous day's
93.5.
The global dollar index rose to 95.476 from the
previous close of 95.365.
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 6.9557, 1.68 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot
rate.

The yuan market at 0434 GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.8389 6.8212 -0.26%

Spot yuan 6.8598 6.8492 -0.15%

Divergence from 0.31%
midpoint*
Spot change YTD -5.14%
Spot change since 2005 20.65%
revaluation

Key indexes:

Item Current Previous Change

Thomson 93.52 93.5 0.0
Reuters/HKEX
CNH index
Dollar index 95.476 95.365 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 6.8726 -0.19%
*
Offshore 6.9557 -1.68%
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)


2018-09-10 07:07:42

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