Trade talk uncertainty weighs on yuan

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    SHANGHAI- China’s yuan retreated after its strongest gain in nine months in October, weighed down by profit taking and renewed uncertainty over whether Beijing and Washington can reach a deal to end their protracted trade war.

    Market sentiment was dented by a Bloomberg report on Thursday which cited unnamed sources as saying Chinese officials have doubts about whether it is possible to reach a comprehensive long-term trade deal with Washington and US President Donald Trump.

    Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0437 per dollar, 96 pips or 0.14 percent firmer than the previous fix of 7.0533.

    In the spot market, onshore yuan opened at 7.0490 per dollar and was changing hands at 7.0440 at midday, 39 pips weaker than the previous late session close.

    “The news came out after the domestic close, and it was not until this morning when liquidity improved that the market moved to reflect investors’ positions and reactions,” said a trader at a Chinese bank.

    Developments in the Sino-US trade dispute have been the main driver for the yuan since the breakout of the trade war last year, and will likely to continue to affect yuan sentiment, according to traders.

    Some traders said the yuan could strengthen substantially if Washington and Beijing can agree on a “phase one” deal this month proceed to the second phase of talks.

    Strategists at DBS Group Research said in a note that market optimism has been “pared back but not unwound” after events in the last few days.

    Trump said on Thursday the United States and China would soon announce a new site where he and Chinese President Xi Jinping will sign a “phase one” trade deal after Chile canceled a planned Asia-Pacific summit set for mid-November where an agreement had been expected to be sealed.

    Separately, investors largely shrugged off central bank’s decision to issue 30 billion yuan ($4.26 billion) of bills in Hong Kong next week, as the sales will cover the maturing bills rather than new issuance.

    The central bank bill sales in Hong Kong were believed to mop up yuan liquidity in Hong Kong and support offshore yuan levels.

    Market reaction was also muted to a private business survey on Friday showing China’s factory activity unexpectedly expanded at the fastest pace in well over two years in

    October. The findings contrasted with an official gauge on Thursday which showed a further deterioration in business conditions.

    The global dollar index fell to 97.225 at midday from the previous close of 97.352.

    The offshore yuan was trading at 7.0445 per dollar. – Reuters