China's yuan inches higher, but Sino-U.S. woes cap gains

Credit: REUTERS/KIM KYUNG-HOON

China's yuan nudged higher against the U.S. dollar on Tuesday, underpinned by rising coronavirus deaths in the United States and slow progress on a U.S. stimulus bill, though traders caution that Sino-U.S. tensions will cap the upside.

SHANGHAI, Aug 4 (Reuters) - China's yuan nudged higher against the U.S. dollar on Tuesday, underpinned by rising coronavirus deaths in the United States and slow progress on a U.S. stimulus bill, though traders caution that Sino-U.S. tensions will cap the upside.

"The yuan is still fluctuating in a narrow range, which may continue in the short term. After all, there is too much uncertainty between China and the U.S., and we can't predict other frictions," said a trader at a Chinese bank.

Before the market opened, the People's Bank of China set the midpoint of the yuan's daily trading band CNY=PBOC at 6.9803 per dollar, firmer than the previous fix of 6.998.

After opening at 6.9840 per dollar, spot yuan CNY=CFXS moved up to 6.9807 by around midday, 12 pips stronger than Monday's late session close. The offshore yuan CNH=D3 changed hands at 6.9822 per dollar around midday, largely steady from the previous day's close.

The Chinese bank trader said he maintained the weak-bias view for the dollar over the short run, but believes the yuan will struggle to rally amid an escalation in Sino-U.S. tensions.

In the latest sign of animosity between Washington and Beijing, the editor of a newspaper published by China's ruling Communist Party's People's Daily warned on Tuesday that Beijing would retaliate if all Chinese journalists based in the U.S. are forced to leave the country.

Global Times Editor in Chief Hu Xijin said retaliation could include targeting U.S. journalists based in Hong Kong.

Hu's comments came amid a spat over the popular short-video app TikTok, which U.S. officials have said presents a national security risk due to the personal data it handles.

U.S. President Donald Trump said the U.S. government should get a "substantial portion" of the sales price of TikTok's American operations, and added that he will ban the service in the United States on Sept. 15 without a sale.

An editorial in China's official English-language China Daily newspaper on Tuesday said China will not accept the "theft" of a Chinese technology company.

On Tuesday, the global dollar index =USD fell to 93.511 from the previous close of 93.539, as investors weighed better-than-expected U.S. manufacturing data against limited progress in Washington toward the passage of fiscal stimulus.

"Until U.S. economic activity returns to reasonable levels and unemployment falls significantly, the Fed will maintain its policy accommodation, driving exchange-traded funds to hold more silver in a weak dollar scenario," analysts at UBS Wealth Management said in a note.

The yuan market at 4:18AM GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.9803

6.998

0.25%

Spot yuan CNY=CFXS

6.9807

6.9819

0.02%

Divergence from midpoint*

0.01%

Spot change YTD

-0.25%

Spot change since 2005 revaluation

18.56%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

91.68

91.76

-0.1

Dollar index

93.511

93.539

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% from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument

Current

Difference from onshore

Offshore spot yuan CNH= *

6.9822

-0.02%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.1271

-2.06%

*Premium for offshore spot over onshore CNY=CFXS

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC.

(Reporting by Andrew Galbraith and Jindong Zhang Editing by Shri Navaratnam)

((Andrew.Galbraith@tr.com; +86 21 2083 0079; Reuters Messaging: andrew.galbraith.thomsonreuters.com@reuters.net ; Twitter: https://twitter.com/apgalbraith))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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