Views Article – Sharenet Wealth

Asia, Forex

China’s yuan holds soft tone after worst week in over a year

* Yuan in tight range as market awaits next steps in trade war * Worst week for yuan since June 2018 after breaching 7 per dollar * U.S. delays go-ahead for firms to trade with Huawei – Bloomberg HONG KONG/SHANGHAI, Aug 9 (Reuters) – China’s yuan inched down against the dollar on Friday as traders awaited Beijing and Washington’s next moves in their bruising tariff tussle, taking a breather after a rapid sell-off earlier this week that sparked fears of an all-out currency war. As of midday, the yuan has lost 1.6% against the greenback this week, marking its worst weekly loss since June 2018. Onshore spot yuan was trading at 7.0512 per dollar, down less than 0.1% on the day. China let the yuan slide past the key 7 per dollar level on Monday for the first time since 2008, shortly after the United States threatened to slap the remaining $300 billion of Chinese goods with 10% tariffs. In the offshore market, the yuan crossed the 7 barrier for the first time ever. Reuters forecasts show that the CFETS yuan index, which measures it against a basket of currencies, also broke a new low of 91.83 on Friday. The People’s Bank of China set the mid-point, which limits the yuan’s onshore movement, at 7.0136 per dollar, 97 pips weaker than the previous fix and at the lowest since 2008 for a second consecutive session. The fixing was still stronger than what traders expected, with market participants increasingly starting to see the yuan trading around a new normal of 7. “By and large, the market has digested this,” said one trader in Shanghai with a foreign bank. “It doesn’t mean the currency won’t bounce back, though in the short term, there are still a lot of risks and uncertainty in the trade talks.” Washington is delaying a decision about licences for U.S. firms to restart trade with Huawei Technologies , according to Bloomberg, while U.S. Senator Marco Rubio urged the White House on Thursday not to allow exception to the ban. A second Shanghai-based trader said trade talks that were scheduled for September in Washington, prior to the latest U.S. tariff threat, now seem unlikely, adding further pressure on the Chinese currency. But as the U.S. Federal Reserve carries on lowering interest rates and widening the gap between U.S. and Chinese interest rates, the yuan may climb back to the stronger side of 7 per dollar, according to Ji Tianhe, China head of foreign exchange and local markets strategy at BNP Paribas in Beijing. “Interest rate differential was an important factor leading the yuan depreciation against the dollar last year as yields between China and the United States shrunk sharply,” he said. The yield gap between Chinese and U.S. benchmark 10-year government bonds stood at 134 basis points on Friday morning, compared with a low of 28 basis points hit in November. A wider yield gap could mean less capital outflow pressure from China and is supportive for the Chinese currency. The Fed trimmed rates by 25 basis points for the first time since the financial crisis last week. China did not immediately follow and kept its main policy rates the same. Markets are pricing in another Fed cut of the same size next month, and another identical move the month after. The offshore yuan was trading 0.34 percent weaker than the onshore spot at 7.0754 per dollar. The global dollar index fell slightly to 97.556 from the previous close of 97.618. The yuan market at 4:00AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.0136 7.0039 -0.14% Spot yuan 7.0512 7.0455 -0.08% Divergence from 0.54% midpoint* Spot change YTD -2.53% Spot change since 2005 17.38% revaluation Key indexes: Item Current Previous Change Thomson 91.61 91.72 -0.1 Reuters/HKEX CNH index Dollar index 97.556 97.618 -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 7.0754 -0.34% * Offshore 7.1145 -1.42% 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 Noah Sin and Winni Zhou; Additional reporting by Jindong Zhang in SHANGHAI; Editing by Jacqueline Wong)

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