Yuan slips to near 6-mth low, c.bank's comments cap losses

Credit: REUTERS/© Kim Kyung Hoon / Reuters

The yuan hit its lowest in almost six months on Thursday as the Sino-U.S. dispute over trade spilled into the technology sector, but the Chinese central bank's firm midpoint fixing and verbal intervention kept losses in check.

By Noah Sin

HONG KONG, May 23 (Reuters) - The yuan hit its lowest in almost six months on Thursday as the Sino-U.S. dispute over trade spilled into the technology sector, but the Chinese central bank's firm midpoint fixing and verbal intervention kept losses in check.

Reuters reported late on Wednesday the U.S. government was considering Huawei-like sanctions on Chinese video surveillance firm Hikvision 002415.SZ over China's treatment of its Uighur Muslim minority, complicating the protracted trade war between the world's two largest economies.

Washington placed Chinese telecoms giant Huawei Technologies HWT.UL on a trade blacklist last week, and is reportedly pressing South Korea to drop using Huawei's equipment, citing security concerns.

Spot yuan CNY=CFXS fell to 6.9190 per dollar by 4.30 pm local time, registering its weakest onshore close since November 30, 2018.

But it quickly pared some of those losses after PBOC Deputy Governor Liu Guoqiang said in published remarks that China has ample reserves, policy tools and confidence to keep the yuan exchange rate stable.

The PBOC's stronger-than-expected midpoint also kept the yuan's fall in check, traders said. Spot yuan can trade 2 percent either side of the fixing.

The PBOC set the midpoint rate CNY=PBOC at 6.8994 per dollar prior to market open, a touch weaker than the previous fix of 6.8992, but still stronger than the Reuters' estimate of 6.901 per dollar and traders' expectations.

"(PBOC) has been keeping (USDCNY fixing) artificially low, to persuade people from trying (to short the yuan)," said a Hong Kong-based head of forex trading at an international bank.

Central bank jawboning has helped stem downward pressure on the yuan, said a second trader, based in Shanghai. "The renminbi has been relatively stable recently because officials have been outspoken," he said.

The verbal campaign started earlier this week, when Pan Gongsheng, another PBOC deputy governor, said China will keep the yuan exchange rate within a reasonable and balanced range, after Reuters reported that the central bank is keen to keep the currency from hitting the widely watched 7 per dollar handle.

The scheduled meeeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 in Japan in late-June is also capping downward pressure on the yuan, leaving it in a tight range, said Carie Li, an economist at OCBC Wing Hang.

"People still have hopes for the G20 meeting. You can't rule out, at this point, that the two sides will not agree to something there," she said.

The next round of U.S. tariffs on Chinese goods could come around the time of the meeting, according to remarks by U.S. Treasury Secretary Steven Mnuchin on Wednesday.

As of 0857 GMT, the offshore yuan CNH=D3 was trading 0.32 percent away than the onshore spot at 6.9384 per dollar. The global dollar index .DXY rose to 98.182 from the previous close of 98.041.

The yuan market at 8:57AM GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

6.8994

6.8992

0.00%

Spot yuan CNY=CFXS

6.9162

6.9068

-0.14%

Divergence from midpoint*

0.24%

Spot change YTD

-0.62%

Spot change since 2005 revaluation

19.67%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

93.85

0.0

Dollar index

98.182

98.041

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= *

6.9384

-0.32%

Offshore non-deliverable forwards CNY1YNDFOR= **

6.976

-1.10%

*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.

(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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