Yuan slips to over 2-week low as Sino-US trade tensions mount

SHANGHAI, Sept 11 (Reuters) - China's yuan extended losses
against the dollar on Tuesday, hitting its lowest level in more
than two weeks, as fears of a sharp escalation in the Sino-U.S.
trade dispute continued to pressure the currency.
China's foreign ministry said on Monday that China will
respond if the United States takes any new steps on trade, after
President Donald Trump warned he was ready to slap tariffs on
virtually all Chinese imports into the United States.

On Friday, Trump said he was ready to levy additional taxes
on practically all Chinese imports, threatening duties on $267
billion of goods over and above planned tariffs on $200 billion
of Chinese products which are expected to be rolled out soon.

Prior to the market opening on Tuesday, the People's Bank of
China (PBOC) set the midpoint rate at 6.8488 per
dollar, 99 pips weaker than the previous fix of 6.8389.
The official midpoint has been set at firmer-than-expected
levels in recent sessions. Tuesday's fixing was 86 pips stronger
than Reuters' estimate of 6.8574.
"With the resumption of direct intervention in USD/CNY
fixing, much tighter capital controls and still relatively large
FX reserves, we believe the PBOC is both willing and able to
deliver a relatively stable USD/CNY around current levels in the
near term," Lu Ting, chief China economist at Nomura, said in a
note.
In the spot market, the onshore yuan opened at
6.8672 per dollar and eased to a low of 6.8741 at one point, the
weakest level since Aug.24.
As of midday, it was changing hands at 6.8654, 97 pips
weaker than the previous late session close and 0.24 percent
softer than the midpoint.
Some traders said the market remains wary that the PBOC may
act more forcefully to stem losses if the yuan falls to around
6.9 per dollar again.
At the same time, market participants are cautious about the
dollar's moves, as major currencies could be affected by
negotiations on Britain's exit from the European Union.
The offshore yuan also weakened on Tuesday, but
losses were to be capped by liquidity tightness. It was trading
at 6.8749 per dollar as of midday.
Large state-run Chinese banks continued to swap dollars for
yuan in the offshore forward markets, sopping up yuan supply. As
a result, Hong Kong's overnight yuan borrowing cost rose for a
fourth straight day on Tuesday.
The 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 one-year tenor of the dollar/yuan swap offshore
rose to a high of 937.23 points, the highest level since June
22.
The CNH Hong Kong Interbank Offered Rate benchmark (CNH
Hibor), set by the city's Treasury Markets Association (TMA),
was fixed at 4.00000 percent for overnight contracts
on Tuesday, the highest level since June 19.
Some traders expect such big bank operations in the offshore
forwards is likely to persist in the near term.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 93.37, weaker than the previous day's
93.49.
The global dollar index fell to 95.149 from the
previous close of 95.15.
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 6.963, 1.64 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot
rate.

The yuan market at 0415 GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.8488 6.8389 -0.14%

Spot yuan 6.8654 6.8557 -0.14%

Divergence from 0.24%
midpoint*
Spot change YTD -5.22%
Spot change since 2005 20.55%
revaluation

Key indexes:

Item Current Previous Change

Thomson 93.37 93.49 -0.1
Reuters/HKEX
CNH index
Dollar index 95.149 95.15 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 percent from official midpoint rate it sets each
morning.

OFFSHORE CNH MARKET

Instrument Current Difference
from onshore
Offshore spot yuan 6.8749 -0.14%
*
Offshore 6.963 -1.64%
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 Andrew Galbraith; Editing by Kim
Coghill)


2018-09-11 07:02:14

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