Views Article – Sharenet Wealth

Asia, Forex

Yuan falls on global easing hopes, unfazed by small cut in new China loan rate

SHANGHAI, Aug 20 (Reuters) – China’s yuan eased to a one-week low on Tuesday, tracking broad strength in the dollar which firmed on hopes that growth boosting measures in Germany and China would ease the risk of a global recession. Traders said the yuan was little moved by a small cut in China’s new loan benchmark rate earlier in the day, though analysts believe rate reforms have opened the door to more policy easing in coming months to help the struggling economy. Simmering trade tensions with the United States remained a key concern for markets. Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0454 per dollar, the weakest level since Aug. 13. The guidance was 89 pips or 0.13 percent weaker than the previous fix of 7.0365. Several traders said Tuesday’s fixing came in surprisingly lower than their forecast. The midpoint was also 9 pips weaker than Reuters’ estimate of 7.0445. The PBOC had persistently set its official guidance rate firmer than market expectations earlier this month, when it allowed the spot rate to fall below the key 7 per dollar level for the first time since the global financial crisis. Markets had seen the recent fixings as an attempt to stabilise the currency. The weakness in the midpoint dragged the onshore market lower. The spot rate opened at 7.0600 per dollar and was changing hands at 7.0681 at midday, 172 pips weaker than the previous late session close. Traders said the weaker fixing and the rises in the greenback weighed on the yuan, and latest news headline on Washington granting Huawei another 90-days trade extension to buy from U.S. suppliers had largely affected sentiment. “The extension on the reprieve signaled a procrastination of China-U.S. trade negotiations, rather than offering a resolution to the trade conflicts,” said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong. “The China-U.S. trade war risk is set to weigh on RMB sentiment in the near term.” The United States will extend a reprieve that permits China’s Huawei Technologies to buy components from U.S. companies to supply existing customers, the Commerce Department said on Monday, but it also moved to add more than 40 of Huawei’s units to its economic blacklist. The offshore yuan was trading at 7.0747 per dollar as of midday. The yuan market at 0433 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.0454 7.0365 -0.13% Spot yuan 7.0681 7.0509 -0.24% Divergence from 0.32% midpoint* Spot change YTD -2.76% Spot change since 2005 17.10% revaluation Key indexes: Item Current Previous Change Thomson 92.06 92.25 -0.2 Reuters/HKEX CNH index Dollar index 98.315 98.347 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 7.0747 -0.09% * Offshore 7.1313 -1.20% 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)

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