July 24, 2020 / 5:06 AM / 12 days ago

Yuan set for worst week in 2 months as Sino-U.S. ties worsen

    SHANGHAI, July 24 (Reuters) - The yuan fell to its lowest
level against the dollar in over two weeks on Friday as ties
between the world's two largest economies deteriorated further
after China told the United States to close its consulate in
Chengdu.
    Beijing's decision was a retaliatory move after Washington
abruptly ordered the closure of the Chinese consulate in Houston
this week, amid allegations of spying.
    The yuan looked set for its worst weekly performance in two
months, having fallen 0.37% to the dollar, its biggest such loss
since late May. 
    Prior to the market opening, the People's Bank of China
(PBOC) weakened the midpoint rate to a new one-week
low of 6.9938 per dollar, 17 pips or 0.02% softer than the
previous fix of 6.9921. 
    In the spot market, onshore yuan opened at 7.0050
per dollar and fell to a low of 7.0225 at one point, the weakest
level since July 8. At midday, it was changing hands at 7.0177
at midday, 137 pips or 0.2% weaker than the previous late
session close.
    Traders expect Sino-U.S. tensions will be the key factor
influencing the yuan for the time being.
    Beijing's decision to order Washington to close its
consulate in Chengdu was largely expected, as China had said it
would retaliate, said a trader at a foreign bank.
    U.S. Secretary of State Mike Pompeo took fresh aim at China
on Thursday, saying Washington and its allies must use "more
creative and assertive ways" to press the Chinese Communist
Party to change its ways, calling it the "mission of our time."
    "Going forward, we should not rule out the possibility that
Sino-U.S. tensions may worsen from here. However, the market has
mostly brushed this off amid persistent risk on," Terence Wu, FX
strategist at OCBC Bank in Singapore, said in a note.
    Relations between Washington and Beijing have deteriorated
sharply this year over a range of issues, from trade and
technology to the coronavirus, China's territorial claims in the
South China Sea and its clampdown on Hong Kong.
    The global dollar index fell to 94.693 at midday,
when the offshore yuan was trading at 7.023 per dollar.
    
    The yuan market at 0414 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9938   6.9921    -0.02%
                                       
 Spot yuan          7.0177   7.004     -0.20%
                                       
 Divergence from    0.34%              
 midpoint*                             
 Spot change YTD                       -0.78%
 Spot change since 2005                17.94%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.71       92        -0.3
 Reuters/HKEX                          
 CNH index                             
 Dollar index    94.693      94.794    -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% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    7.023     -0.08%
        *                        
 Offshore              7.1613    -2.34%
 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 Andrew Galbraith; Editing by Kim
Coghill)
  
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