Yuan weakens as China braces for more sweeping U.S….

SHANGHAI, Sept 6 – China’s yuan weakened against the dollar on Thursday as investors braced for more sweeping tariffs expected soon from Washington, raising the risk of a sharp escalation in the U.S.-Sino trade war. A heavy sell-off in emerging market currencies in recent weeks added to the cautious mood. U.S. President Donald Trump was quoted last week as saying he is ready to impose tariffs on $200 billion more of Chinese imports as soon as a public comment period on the plan ends on Thursday, though it is unclear how quickly they would go into force. “The catalyst for another adjustment lower in CNY will be the next round of U.S. tariffs on Chinese imports,” FX strategists at ING said in a note. “The size of tariffs enforced will likely determine the extent to which USD/CNY moves up – anything close to the extreme 25 percent tariffs on $200 billion Chinese imports could see USD/CNY appreciating to 7.00 in the coming months.” Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.8217 per dollar prior to market open, firmer than the previous fix 6.8266. Thursday’s fixing was 28 pips firmer than Reuters’ estimate of 6.8245 per dollar. In the spot market, the onshore yuan opened at 6.8230 per dollar and was changing hands at 6.8370 at midday, 89 pips weaker than the previous late session close and 0.22 percent softer than the midpoint. Traders said some corporate dollar buying on Thursday morning dragged the yuan lower, but most market participants were taking a wait-and-see approach. China has pledged to retaliate for any new U.S. duties. Trump said on Wednesday that the United States was not yet ready to come to an agreement over trade disputes with China but he said talks would continue. Traders said they expect Chinese authorities to maintain a tight grip on the yuan if the trade dispute intensifies. The PBOC is likely to increasingly intervene to support the currency over the coming year if the dollar remains strong and trade pressures persist, a Reuters poll found. The yuan is expected to gain 1 percent to 6.77 per dollar in a year, according to the poll of over 50 foreign exchange strategists taken Sept 3-5. But 18 of 40 common contributors have now revised their forecasts to a weaker yuan compared with a poll taken last month, citing the risk that global trade tensions worsen. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.41, weaker than the previous day’s 93.53. The global dollar index fell to 95.086 from the previous close of 95.184. The offshore yuan was trading 0.23 percent weaker than the onshore spot at 6.8527 per dollar. 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 6.9143, 1.34 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The yuan market at 0408 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8217 6.8266 0.07% Spot yuan 6.837 6.8281 -0.13% Divergence from 0.22% midpoint* Spot change YTD -4.83% Spot change since 2005 21.05% revaluation Key indexes: Item Current Previous Change Thomson 93.41 93.53 -0.1 Reuters/HKEX CNH index Dollar index 95.086 95.184 -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 6.8527 -0.23% * Offshore 6.9143 -1.34% 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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