August 29, 2019 / 5:26 AM / 22 days ago

China's yuan struggles to find floor as tariffs loom

 (Adds detail, comments and background)
    SHANGHAI, Aug 29 (Reuters) - China's yuan extended losses
for the 11th day on Thursday, knocked down by corporate demand
for dollars as Washington and Beijing prepare to impose new
tariffs on each other's goods.
    The Chinese currency stumbled lower in spite of
firmer-than-expected central bank guidance via its daily fixing
and state bank support.
    The Trump administration on Wednesday made official its
extra 5% tariff on $300 billion in Chinese imports and set
collection dates of Sept. 1 and Dec. 15. 
    China said last week it would impose additional tariffs in
retaliation for the impending U.S. actions.
    Prior to market opening, the People's Bank of China (PBOC)
lowered its official midpoint marginally to a fresh
11-1/2-year low of 7.0858 per dollar, but at a much firmer level
than traders had expected.
    It is the third straight day that the PBOC has fixed its 
guidance rate firmer than market expectations, a sign investors
have read as an official attempt to steady the declines.
    The onshore spot yuan opened at 7.1633 per dollar
and was changing hands at 7.1668 by midday, 23 pips weaker than
the previous late session close and 1.14 percent softer than the
midpoint.
    If the yuan closes at these levels, it will be the longest
losing streak for the currency since China unified official and
market exchange rates in 1994, while August will also likely be
its worst month in 25 years.
    The central bank will keep on managing the pace of the
decline rather than defending any particular level, Eugenia
Fabon Victorino, head of Asia strategy at SEB Markets in
Singapore, said in a note.
    "Considering the large move in the currency market of late,
we note an increased reliance on the counter-cyclical factor in
the daily fixing mechanism," she said, expecting that the
authorities will not tolerate a "free fall" in the yuan even as
it guides the fixing lower.
    Thursday's official guidance rate, 23 pips weaker than the
previous fix of 7.0835, was the weakest since March 18, 2008.
And it was 379 pips or 0.53% stronger than Reuters' estimate of
7.1237 per dollar.
    In addition, major state-owned banks were seen supporting
the yuan by receiving dollar liquidity in the forwards market
before selling the greenback in the onshore spot market around
the 7.17 per dollar level, three traders said.
    "Recent dollar purchase were strong. (The state banks) were
offering at around (7.17 per dollar), but did not seem to
control the price at any specific level," said one of the
traders.
    A second trader who also spotted state bank action said
dollar sales in the spot market were to meet higher corporate
demand, indicating market views were generally sceptical that
Beijing and Washington would be able to reach a trade deal in
the near term.
    Such state bank action in the forwards market dragged
one-year dollar/yuan swap points down to the weakest
level in three weeks.
    Market participants believe state-run banks usually act on
behalf of the central bank in China's foreign exchange market,
although the big banks can also trade on their own behalf.
    The offshore yuan was trading at 7.1731 per dollar
as of midday.    
    
    The yuan market at 0408 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      7.0858   7.0835    -0.03%
                                       
 Spot yuan          7.1668   7.1645    -0.03%
                                       
 Divergence from    1.14%              
 midpoint*                             
 Spot change YTD                       -4.10%
 Spot change since 2005                15.48%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         90.84       90.75     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    98.189      98.21     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    7.1731    -0.09%
        *                        
 Offshore              7.227     -1.95%
 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 Sam
Holmes)
  
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below