Yuan dips but on track for winning week on hopes of trade thaw
SHANGHAI, Nov 16 (Reuters) - Heavy corporate dollar demanddragged the Chinese yuan lower against the greenback on Friday,but it was still on course for a winning week on news thatWashington and Beijing were talking again about resolving theirbitter trade dispute.
But while market sentiment has improved on the reports, theyuan's gains were capped by caution over whether either side wasnow more willing to compromise after months of fractious on-offnegotiations resulted in little progress.
A senior Trump administration official told Reuters onThursday that China's written response to U.S. demands for tradereforms is unlikely to trigger a breakthrough at talks betweenPresidents Donald Trump and Xi Jinping later thismonth. But some other reports have raised hopes that China could atleast buy some time if Trump can be persuaded to hold off onfurther tariff action. A sharp tariff hike on Chinese goods isdue to take effect on Jan. 1 and Trump has threatened to expandduties to a lot more goods.
Market widely believe Chinese authorities are keen toprevent the yuan from weakening too sharply before thehigh-stakes talks to avoid irritating the White House.
Economists at Morgan Stanley said trade talks will remaindifficult, and a full resolution of differences is unlikely inthe near term.
"Whether this pause occurs or not, however, does not changethe medium-term trajectory of the U.S.-China trade tensions.Importantly, this 'pause' would only serve to delay furtherescalation," they said in a note.
Prior to the market opening on Friday, the People's Bank ofChina set the midpoint rate at 6.9377 per dollar, 15pips firmer than the previous fix of 6.9392.
In the spot market, the onshore yuan opened at6.9312 per dollar and rose to a high of 6.8284 before giving upits gains.
By midday, it was changing hands at 6.9419, 39 pips weakerthan the previous late session close and 0.06 percent softerthan midpoint.
Still, if the yuan finishes the late night session at themidday level, it would have gained 0.2 percent to the dollar forthe week, compared with a loss of 1 percent a week earlier.
A trader at a foreign bank expects the yuan to swing in awide range of 6.92 to 6.97 for now, noting that the lower end ofband might continue to offer strong support as major state-ownedbanks were seen selling dollars to shore up the yuan at thatlevel.
Major state-run banks often act on behalf of central bank inforeign exchange market.
The Chinese currency has recently pulled back from thepsychologically critical 7 per dollar level, which has not beenbreached since the global financial crisis, but market watchers
believe it will come under renewed depreciation pressure in thelong run.
"We expect CNY to weaken in a managed way and ultimatelybreach 7.0 against the USD in the coming months, barring majorpositive developments on the U.S.-China trade relationship,"Goldman Sachs said in a research note on 2019 outlook.
In the offshore market, the offshore yuan continued to tradefirmer than its onshore counterpart, underpinned by signs ofliquidity tightness.
Hong Kong's offshore yuan overnight borrowing rate, orHIBOR, was fixed higher for a second straight dayat 3.23425 percent on Friday, about 38 basis points higher thanthe previous day's fix of 2.85567 percent. Friday's fix was thehighest since Oct.9.
Tighter offshore yuan liquidity could raise speculators'cost of shorting the Chinese currency.
The offshore yuan was choppy overnight in response toconflicting reports over whether there has been any progress intrade discussions.
The Financial Times reported U.S. Trade RepresentativeRobert Lighthizer has told some industry executives that anotherround of U.S. tariffs on Chinese imports has been put on hold.But a U.S. Trade Representative spokesperson later denied thisreport.The offshore yuan was trading at 6.9333 per dollar as ofmidday.
The yuan market at 0431 GMT:
ONSHORE SPOT: Item CurrentPreviousChange PBOC midpoint6.9377 6.93920.02% Spot yuan6.9419 6.938 -0.06% Divergence from0.06%
midpoint*
Spot change YTD -6.27% Spot change since 200519.23% revaluation
Key indexes:
ItemCurrent PreviousChange
Thomson 93.09 93.10.0 Reuters/HKEX
CNH index
Dollar index96.99396.9270.1
*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 yuan6.93330.12%
*
Offshore6.9885-0.73% 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 KimCoghill)
Messaging: winni.zhou.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. |