Trump's currency comments lift yuan, but limited impact seen

SHANGHAI: China's yuan strengthened against the US dollar on Thursday following President Donald Trump's comments on currencies, but through the day the gains were pared.

Traders in Shanghai said they believe that the impact of Trump's remarks on the Chinese currency would be short-lived.

On Wednesday, Trump told the Wall Street Journal that the dollar was too strong and he backed away from labeling China currency manipulator.

His comments pulled down the dollar. Prior to the opening of the Shanghai market on Thursday, the People's Bank of China set the midpoint rate for yuan trading at 6.8651 per dollar, the highest since Feb. 17 and firmer than the previous fix of 6.8940.

The spot market opened at 6.8740 per dollar and at 0858 GMT, was changing hands at 6.8854, or 76 pips stronger than previous late session close.

A trader at a Hong Kong bank in Shanghai said Trump's decision to not label China a manipulator would have a "one or two-day impact" on the yuan, which was likely to stay around 6.8-6.9 in the coming month.

Trump's decision showed he was "just bluffing" when he had said the US government would put that label on China, the trader added.

Larry Hu, an analyst for Macquarie in Hong Kong, said as China's tighter controls have largely eased the problem of capital inflows, the yuan "is expected to gradually pick up this year".

Despite Trump's comments backing away from labeling China a currency manipulator, many analysts reckon the new US administration is just beginning to flex its trade muscles with Beijing and other major trading partners.

China reported its overall trade surplus rose in March after logging its first deficit in three years in February.

Traders said the trade data did not affect the yuan's level.

The offshore yuan was trading 0.04 percent away from the onshore spot at 6.8826 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.0479, -2.59 percent away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.