Yuan eases as investors focus on Sino-US tensions, tighter cash conditions pare losses

SHANGHAI: China's yuan eased marginally against the dollar on Monday, as some investors shifted their attention to a potential flare-up in tensions between Beijing and Washington, but losses were pared by signs of tightness in onshore money markets.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at a near four-week high of 6.5233 per dollar, firmer than the previous fix of 6.5288.

In the spot market, onshore yuan opened at 6.5282 per dollar and was changing hands at 6.5258 at midday, 46 pips weaker than the previous late session close.

Currency traders said the yuan continued trading sideways on Monday, with many investors becoming cautious ahead of a US Senate panel's consideration of a China bill to gauge future developments in Sino-US relations, a critical factor weighing on the yuan over the past few years.

"Market will continue to watch out for the collaboration between US and China on climate change after a fruitful discussion between top climate officials in Shanghai last week," Tommy Xie, head of Greater China research at OCBC Bank in Singapore, said in a note.

"However, the US-China relationship is likely to be clouded by the upcoming bipartisan 'Strategic Competition Act of 2021'."

The Senate Foreign Relations Committee is scheduled to vote on a 280-page bipartisan bill that aims to counter China's influence on April 21.

Some analysts and economists pointed out that the Biden administration, unlikely its predecessor, has shifted its China focus away from trade imbalances.

"Without the return of trade war, the escalating China-US tensions should prove to (be) less destructive to the RMB but the increasing financial sanctions, if any, could disrupt capital flow to China and fuel RMB volatility," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

The domestic currency market largely ignored the US Treasury Department's decision not to label China as a currency manipulator in the first semi-annual foreign exchange report issued by Treasury Secretary Janet Yellen.

Losses in the local currency were capped by slightly tighter liquidity conditions in the onshore interbank market as tax season approached. The interest rate on China's benchmark overnight repo traded in the interbank money market jumped to 2.31% in the morning session, the highest level since April 1.

The global dollar index rose to 91.651 at midday, while the offshore yuan was trading at 6.5257 per dollar.