Yuan edges up as U.S. Treasury chief hails progress in trade talks

Credit: REUTERS/Thomas White

The yuan firmed slightly on Tuesday, buoyed by optimism that an agreement on trade was within reach between the United States and China.

HONG KONG, Sept 10 (Reuters) - The yuan firmed slightly on Tuesday, buoyed by optimism that an agreement on trade was within reach between the United States and China.

U.S. Treasury Secretary Steven Mnuchin said on Monday the two sides have "made a lot of progress" in trade talks and that the United States will seal an agreement if it "can get a good deal" in the coming weeks.

Chinese officials at the vice-minister level will travel to Washington in mid-September, followed by meetings in Washington between Chinese Vice Premier Liu He, Mnuchin, and U.S. Trade Representative Robert Lighthizer.

"Right now, there is only good news and no bad news in Sino-U.S. negotiations. Market sentiment is relatively good in the short term," said a trader at a Chinese bank in Shanghai.

The trader added that the authorities will likely keep the yuan stable before the long National Day holidays, which begins on Oct. 1. "The (central bank's) intention to adjust and control through the midpoint is very clear," he noted.

Spot yuan CNY=CFXS changed hands at 7.1162 per dollar at midday, 0.07% stronger than the previous late session close and 0.45% softer than the midpoint guidance rate CNY=PBOC, set by the People's Bank of China at 7.0846 prior to market open.

The central bank has set the midpoint - from which the onshore yuan can trade 2% on either side - consistently stronger than market expectations in recent sessions. Reuters' estimate of the midpoint came in at 7.0958 on Tuesday.

With the United States and China embroiled in a bitter trade war for more than a year, analysts have been trimming their China forecasts. Fitch Ratings was the latest on Tuesday to cut its 2020 growth forecast to 5.7% from 6.0%.

To bolster the economy, the PBOC cut the amount of cash banks must keep in reserve on Friday for the seventh time since early 2018 to help boost lending.

On Monday, a meeting chaired by Chinese President Xi Jinping said it would create favourable conditions for private firms and improve the competitiveness of its manufacturing sector.

Policy easing, a softer dollar and trade talk progress should support the yuan to trade in the 7.1 to 7.2 region in the short run, OCBC Wing Hang Bank's analysts wrote in a note on Tuesday.

Ken Cheung, Mizuho Bank's chief Asian FX strategist, also expects the yuan to trade in this range "unless China and U.S. make substantial progress in trade talks," he said in a note on Tuesday.

Cheung said the market had a largely muted reaction to China's inflation data earlier on Tuesday.

"Overall, the benign CPI inflation (below around 3% target) is unlikely to restrain PBOC's easing for now while bottoming PPI reduced deflation fears."

The offshore yuan CNH=D3 was trading 0.03 percent firmer than the onshore spot at 7.114 per dollar.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 91.32, firmer than the previous day's 91.13.

The yuan market at 0401 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

7.0846

7.0851

0.01%

Spot yuan CNY=CFXS

7.1162

7.121

0.07%

Divergence from midpoint*

0.45%

Spot change YTD

-3.42%

Spot change since 2005 revaluation

16.31%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

91.32

91.13

0.2

Dollar index

98.375

98.281

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 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument

Current

Difference from onshore

Offshore spot yuan CNH= *

7.114

0.03%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.1715

-1.21%

*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.

cnycf19091001https://tmsnrt.rs/2A2vA8D

(Reporting by Noah Sin; Additional Reporting by Rong Ma in Shanghai Editing by Jacqueline Wong)

((Noah.Sin@thomsonreuters.com; +852 2841 5782; Reuters Messaging: noah.sin.thomsonreuters.com@reuters.net; Twitter: https://twitter.com/noah_sin))

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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