Yuan weakens as dollar firms, set for worst week since July
SHANGHAI, Nov 9 (Reuters) – The yuan dipped on Friday as the dollar firmed and looked set for its biggest weekly loss since mid-July, highlighting the diverging policy outlooks for China and the United States. The dollar strengthened after the U.S. Federal Reserve largely maintained its rosy view of the U.S. economy, staying on course to raise interest rates again in December. China, on the other hand, is expected to roll out more policy easing and growth boosting measures in coming months to cushion its slowing economy. If the onshore spot yuan finishes the late night session at the midday level, it will have shed 0.9 percent against the dollar this week, taking its losses so far this year to around 6.3 percent. Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate to a fresh one-week low at 6.9329 per dollar, 166 pips or 0.23 percent weaker than the previous fix of 6.9163. In the spot market, opened at 6.9440 per dollar and was changing hands at 6.9468 at midday, 128 pips weaker than the previous late session close and 0.20 percent softer than the midpoint. While the yuan is expected to take its clues largely from dollar movements for now, traders and analysts do not expect it to break the closely watched 7 per dollar level soon. But they noted it will face persistent pressure in longer run if the dollar remains firm and there are no signs of a compromise in the U.S.-China trade war. “If the yuan is just being pushed down by speculators in disorderly trading and there is a big risk of big drop in the yuan, I’m sure the PBOC will come in to slow it down, and kick the speculators in the back again,” said Chi Lo, senior economist for Greater China at BNP Paribas Asset Management told Reuters on Thursday. Pan Gongsheng, a vice governor at the PBOC, had issued a strong warning last month against speculators who sought to short the yuan. All eyes are now on high-stakes talks between U.S. President Donald Trump and his Chinese counterpart President Xi Jinping’s on the sidelines of a G20 meeting late this month. Trump has warned he could slap tariffs on another $267 billion in Chinese imports into the United States if the discussions make no headway in resolving the trade dispute. “It would be unrealistic to expect any meaningful Sino-U.S. trade deal at G20 Summit. We have not changed our forecast for USD/CNY to end the year at 7.00 and holding above this level in 2019,” strategists at DBS Group Research said in a note on Friday. Separately, analysts said largely muted Chinese inflation data on Friday will continue to give policymakers plenty of room for further easing to support the economy as demand cools. Lu Ting, chief China economist at Nomura in Hong Kong, expects the contained inflation “will not affect Beijing’s policy easing agenda”. The global dollar index stood at 96.724 as of midday. The offshore yuan was trading at 6.9435 per dollar.
The yuan market at 0324 GMT:
ONSHORE SPOT:
Item Current Previous Change PBOC midpoint 6.9329 6.9163 -0.24% Spot yuan 6.9468 6.934 -0.18% Divergence from 0.20%
midpoint*
Spot change YTD -6.33% Spot change since 2005 19.14%
revaluation
Key indexes:
Item Current Previous Change Thomson 92.92 92.8 0.1
Reuters/HKEX CNH index
Dollar index 96.691 96.724 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 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan 6.9435 0.05% * Offshore 6.9895 -0.81%
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 John Ruwitch in SHANGHAI, Kevin Yao in BEIJING; Editing by Kim Coghill)
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