Yuan firms on state bank support, signs trade tensions easing
(Updates closing price, adds quotes and details)
SHANGHAI, Nov 13 (Reuters) - China's yuan closed slightlyfirmer on Tuesday as early support from major state-ownedChinese banks lifted the currency from near-decade lows, andsentiment improved after media reports fueled hopes for ade-escalation in the Sino-U.S. trade war.
The onshore yuan ended domestic trade at 6.9531
per dollar at 4:30 pm (0830 GMT), 113 pips, or 0.16 percent,firmer than the previous late night close.
State-run Chinese banks were seen selling dollars at around6.97 yuan per dollar in the onshore spot foreign exchange marketin early trade, three traders said, in an apparent attempt tohalt a sharp slide in the yuan. The move effectively offset broad strength in the greenback,which hovered near a 16-month high versus a basket of majorworld currencies. Prior to the market opening on Tuesday, the People's Bank ofChina (PBOC) lowered the midpoint rate for a fourthstraight day to 6.9629 per dollar, 153 pips or 0.22 percentweaker than the previous fix of 6.9476.
Tuesday's fixing was the weakest since Nov. 1."The 6.97 per dollar level offers strong support currently.It's a level that the central bank would firmly protect fornow," said a chief trader at a Chinese bank.
Heavy dollar demand from both corporate clients and traders'proprietary accounts eased in the afternoon following a SouthChina Morning Post report saying Vice Premier Liu He wasexpected to visit the United States shortly for talks ahead of ameeting between the two countries' leaders.
Market participants suspect authorities want to prevent theyuan from weakening too sharply before a meeting between U.S.President Donald Trump and Chinese President Xi Jinping on thesidelines of a G20 gathering in Argentina in late Novemberthrough early December.
While markets do not expect the meeting to produce abreakthrough agreement to end the tariff war, there are signsthat diplomatic tensions may be easing.
U.S. Treasury Secretary Steven Mnuchin has resumeddiscussions with Vice Premier Liu, with the two speaking bytelephone on Friday, the Wall Street Journal reported citingsources. Still, as the yuan approached the psychologically critical 7per dollar again, the intervention by state banks on Wednesdayhas revived the debate over how strongly the central bank willdefend that level if China's economy continues to cool and theU.S. trade battle worsens.
Ken Cheung, senior Asian FX strategist at Mizuho Bank inHong Kong said he was maintaining his call that Beijing willstop the yuan from weakening beyond 7 per dollar for the rest ofthis year.
"The PBOC clarified its stance to defend the RMB exchangerate to anchor RMB expectations. Following PBOC deputy governorPan's warning on RMB short-sellers, the PBOC said it wouldreinforce macro-prudential management to keep RMB exchange rateat reasonable and equilibrium level if necessary," Cheung saidin a note.
In the offshore market, signs of liquidity tightness alsolent support for the Chinese unit.
Hong Kong's offshore yuan overnight borrowing rate, orHIBOR, was fixed at 2.68800 percent on Tuesday,about 1.3 percentage points higher than the previous day's fixof 1.41367 percent. And Tuesday's fix was the highest sinceOct.11.
At 0830 GMT, the offshore yuan was trading at 6.9507 perdollar.
Separately, former U.S. Federal Reserve chair Janet Yellentold a forum in Beijing that she expects further tightening inthe United States and sees additional downward pressure on theChinese currency.
"Over the next year, I anticipate that the Fed will boostrates three or four additional times to stabilize theunemployment rate," Yellen said in a live video representationbroadcasting at the forum.
"Now PBOC is on a path of easing monetary policy somewhat,(and it is) the homegrown Chinese factor that's placing downwardpressure on the currency and triggering some capital outflows,"she said, adding her understanding was that the PBOC was "tryingto resist" a depreciation of the yuan.
(Reporting by Winni Zhou and John Ruwitch, Stella Qiu inBEIJING; Editing by Simon Cameron-Moore)
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