August 29, 2019 / 9:43 AM / 24 days ago

Yuan rises, snaps 10-day losing streak after China comments on trade talks

(Updates domestic closing level, adds details)

SHANGHAI, Aug 29 (Reuters) - The yuan snapped a 10-day losing streak on Thursday, thanks to its afternoon rebound after the Chinese commerce ministry said China and the United States are discussing the next round of face-to-face trade talks, scheduled for September.

Onshore spot yuan finished the domestic session at 7.1514 per dollar as of 0830 GMT, 131 pips stronger than the previous late session close of 7.1645.

Also at 0830 GMT, the offshore yuan was trading at 7.1551 per dollar.

Traders said Beijing’s latest comments boosted yuan sentiment as they raised hopes for the world’s two largest economies to end their costly year-long trade war.

The Chinese ministry said hopes for progress hinge on whether Washington can create favourable conditions for the coming talks in the United States.

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.

Thursday’s strengthening of the spot yuan rate also followed firmer-than-expected central bank guidance via its daily fixing and state bank support.

Still, the yuan remained on course for its worst month since China unified its official and market exchange rates in 1994.

Prior to Thursday’s 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 expected.

It was the third straight day that the PBOC fixed its guidance rate firmer than market expectations, a sign investors have read as an official attempt to steady the declines.

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 on Thursday morning, 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.

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.

Separately, a Reuters poll showed that short bets on China’s yuan were at their highest in one year. (Reporting by Winni Zhou and John Ruwitch; Editing by Sam Holmes)

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