Views Article – Sharenet Wealth

Asia, Forex

Yuan eases as trade war uncertainty rattles sentiment

SHANGHAI, Aug 12 (Reuters) – China’s yuan inched lower against the dollar on Monday, after posting its biggest weekly drop in over a year as fresh uncertainty in the Sino-U.S. trade negotiations weighed on the unit. The onshore spot yuan fell 1.7% against the greenback last week as Beijing let its currency weaken past the key 7 per dollar level for the first time since the global financial crisis. The decline followed the United States’ threat to slap a 10% tariff on $300 billion of Chinese goods. Traders said developments in the trade war with the United States dragged the local unit in the morning session. U.S. President Donald Trump on Friday said he was not ready to make a deal with China and even called a September round of trade talks into question. In the spot market, onshore yuan opened at 7.0599 per dollar and was changing hands at 7.0624 at midday, 9 pips weaker than the previous late session close. Losses in the yuan were capped as authorities sent signals to stabilise the yuan through the central bank’s daily official guidance rate, discouraging investors from testing lows in the yuan, traders said. Prior to market open on Monday, the People’s Bank of China (PBOC) set the midpoint rate at a fresh 11-year low of 7.0211 per dollar, 75 pips or 0.11 percent weaker than the previous fix of 7.0136. Monday’s official guidance rate, the weakest since April 2, 2008, was stronger than the market had expected, a situation that was also seen last week. The fixing was 120 pips or 0.17% firmer than Reuters’ estimate of 7.0331 per dollar. “We still expect the PBOC to be very cautious managing the pace of depreciation to guide market expectation and avoid the risk of triggering large capital outflows, as suggested by the very negative counter-cyclical factors in the last few days and PBOC’s other comments on the exchange rate,” economists at Goldman Sachs said in a note. The counter-cyclical factor, a tool first introduced to midpoint formula in May 2017, was widely interpreted by the market as an official attempt to reduce price swings and counteract yuan depreciation expectations. “In this case, the yuan is likely to consolidate at weaker-than-seven-per-dollar for a while,” said a trader at a foreign bank in Shanghai. Several yuan traders said the next supportive level for the onshore spot rate could be 7.1 per dollar for now. Iris Pang, economist for Greater China at ING in Hong Kong, revised her forecast for the yuan to trade at 7.05 at the end of the third quarter and 7.1 at the end of the year. “In the near term, we think the yuan will trade in a range of 7.00 to 7.10,” Pang said. “Further weakness would send a signal that China wants to start a currency war, which we strongly believe is not the case because this would do little to benefit the Chinese economy as other Asian currencies would just weaken along with the yuan.” China’s central bank reiterated in its second-quarter monetary policy report on late Friday that it would keep the yuan stable and maintain its prudent monetary policy to ensure financial stability in the world’s second-largest economy. Separately, on a trade-weighted basis, the yuan’s value against a basket of 24 currencies created by the China Foreign Exchange Trading System, or CFETS, fell to 91.84, the lowest level since the index was introduced in 2015, down 1.84% from a week earlier, official data showed on late Friday. The CFETS index is only published once a week. The yuan market at 0408 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.0211 7.0136 -0.11% Spot yuan 7.0624 7.0615 -0.01% Divergence from 0.59% midpoint* Spot change YTD -2.68% Spot change since 2005 17.19% revaluation Key indexes: Item Current Previous Change Thomson 91.46 91.64 -0.2 Reuters/HKEX CNH index Dollar index 97.505 97.491 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 7.0896 -0.38% * Offshore 7.132 -1.55% 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 Sam Holmes)

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