HONG KONG- The yuan edged lower on Tuesday as Sino-US trade tensions showed no sign of abating, but China’s central bank again set a firmer-than-expected guidance rate, tempering losses.
China on Monday lodged a complaint against the United States at the World Trade Organization, after Washington slapped a 15 percent tariffs on various Chinese goods the previous day. Beijing hit back with new duties on US crude oil.
Escalations in the year-long trade conflict led the Chinese currency to its sharpest monthly drop in 25 years in August.
But on Tuesday, the yuan’s losses were limited by the People’s Bank of China’s fixing, which came in at 7.0884 per dollar, a new 11-1/2 year low but stronger than Reuters’ estimate of 7.1099. Spot yuan can trade 2 percent either side of this guidance rate.
The onshore yuan changed hands at 7.1806 at midday, 89 pips weaker than the late session close and 1.3 percent softer than the midpoint.
As long as the midpoint stays on the stronger side of 7.1, spot yuan will find support around 7.2, OCBC Wing Hang Bank said in a note on Tuesday.
The PBOC will likely keep yuan close to its current levels before US and Chinese trade negotiators meet later this month, even if further yuan weakness may help Chinese exporters and economic growth, said a trader with a foreign bank in Shanghai.
“Ultimately, the source of economic pressure is the trade conflict, and the US would not like to see the yuan depreciate too much,” he said.
Washington labeled China a currency manipulator last month after Beijing let the yuan slip past 7 per dollar.
A forex sales banker in Hong Kong said the PBOC has no clear “line in the sand” for yuan prices and will instead focus on “trying to contain volatility at this point in time.” – Reuters