Yuan weakens as trade tensions, easing pressures persist
* Yuan ends onshore trading session at 6.9429 per dollar
* Trump-Xi meeting at G20 remains in focus
* China sold more U.S. Treasuries in October
(Updated to onshore close, adds comments on U.S. Treasury data)
By Noah Sin
HONG KONG, Nov 19 (Reuters) - The yuan dropped against thedollar on Monday as the United States kept up pressure on Chinain their bitter trade dispute and as expectations grew thatChina's central bank could cut lending rates to combat weakeningeconomic growth.
The yuan had made gains late Friday after U.S. PresidentDonald Trump softened his tone on the trade war, saying that he"may not have to" ramp up tariffs next year, but lost most ofthat ground followingVice President Mike Pence's commentstargeting China at the weekend.Attending the Asia Pacific Economic Co-operation (APEC)meeting in Papua New Guinea, Pence warned that there would be nolet up in Washington's tariffs until China changed its tradepractices.The spot yuan finished the onshore tradingsession Monday at 6.9429, 78 pips weaker than the previous latesession close. This was despite the People's Bank of Chinasetting its daily yuan midpoint at 6.9245 per dollarprior to market open, firmer than the previous fix of 6.9377.
"The development in U.S.-China trade frictions will be themain driver impacting the path of USD/CNY and USD/CNH," StephenChiu, an analyst at China Construction Bank (Asia) in Hong Kong,wrote in a memo on Monday, noting that Pence's comments at APECwould will likely keep the yuan weak at the start of the week.
However, with the direction of the trade talks stillunclear, the pace of that depreciation will be mild, said aShanghai-based trader with a foreign bank.
"We don't expect a lot of volatility ahead of the U.S.-Chinadialogue," he said, referring to the scheduled meeting betweenTrump and Chinese President Xi Jinping at the G20 summit inArgentina later this month.
Also putting pressure on the yuan is speculation that thePeople's Bank of China (PBOC) could cut benchmark lending ratesfor the first time in three years, amid weak credit growth andsluggish economic performance. "The rapid decline of onshore yields as a result of furthereasing expectation due to weak credit data may also limit therenminbi's upside," Tommy Xie, the Singapore-based head ofGreater China Research at OCBC Bank, wrote in a note on Monday.
The dollar had softened across the board on Friday afterFederal Reserve policymakers raised concerns over a slowingglobal economy, even as they signaled more interest rate hikesahead. But markets believe the tightening cycle could end soonerthan previously expected. The global dollar index fell to 96.392 on Monday fromthe previous close of 96.465.
As the yuan drew near the 7 per dollar level in recentsessions, state-owned banks were seen selling dollars and buyingthe Chinese currency. Official U.S. data released over the weekend, which showedChina sold the most Treasuries in nearly two years in September,appeared to reflect Chinese authorities' determination to guardthe red line. But the Shanghai-based trader said China's policy may bemore nuanced than the data suggests.
"Reserves exist in many forms," said the trader. WhileChinese authorities 'sell' U.S. Treasuries, they may allocatedollar asset elsewhere. It's not necessarily that straightforward."
The Thomson Reuters/HKEX Global CNH index , whichtracks the offshore yuan against a basket of currencies on adaily basis, stood at 92.78, weaker than the previous day's92.79.
The offshore yuan was trading 0.09 percent awayfrom the onshore spot at 6.937 per dollar.
The yuan market at 9:10AM GMT:
ONSHORE SPOT: Item CurrentPreviousChange PBOC midpoint6.9245 6.93770.19% Spot yuan6.9434 6.9351-0.12% Divergence from0.27%
midpoint*
Spot change YTD -6.29% Spot change since 200519.20% revaluation
Key indexes:
ItemCurrent PreviousChange
Thomson 92.78 92.79 0.0 Reuters/HKEX
CNH index
Dollar index96.39296.465-0.1
*Divergence of the dollar/yuan exchange rate. Negative numberindicates that spot yuan is trading stronger than the midpoint.The People's Bank of China (PBOC) allows the exchange rate torise or fall 2 percent from official midpoint rate it sets eachmorning.OFFSHORE CNH MARKET
InstrumentCurrent Difference from onshore Offshore spot yuan6.937 0.09%
*
Offshore6.9994-1.07% 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; Editing by Simon Cameron-Moore)
Messaging: noah.sin.thomsonreuters.com@reuters.net)) Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. |