SHANGHAI: China’s yuan inched higher against the dollar on Tuesday as the central bank continued to guide the currency firmer hours ahead of the expected imposition of more US tariffs.
The United States is expected to raise tariffs on Chinese goods by 10% at 0501 GMT on Tuesday, on top of the 10% tariffs imposed in February. Market participants will closely monitor the developments of the tariffs and possible retaliation from China.
The People’s Bank of China (PBOC) has been offering support for the currency market by persistently setting firmer-than-expected midpoint fixings since mid-November, with traders and analysts interpreting the moves as an official attempt to keep the yuan steady.
“However, we expect the Chinese authorities to eventually allow RMB to adjust in response to significant tariffs as evident in the 2018/2019 trade war experiences,” analysts at Nomura said in a note.
Trade tensions had been one of the key drags on the yuan during Donald Trump’s first term as president. A series of tit-for-tat US-China tariff announcements drove the Chinese currency down more than 12% against the dollar between March 2018 and May 2020.
As of 0350 GMT, the onshore yuan was 0.12% higher at 7.2796 per dollar.
Its offshore counterpart traded at 7.2850 around midday, after briefly weakening past the key 7.3 level.
Prior to the market opening, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1739 per dollar, 6 pips firmer than the previous fix of 7.1745, albeit against a broadly stronger dollar in global markets.
Tuesday’s official midpoint was 988 pips firmer than a Reuters estimate of 7.2727.
Trump said on Monday he told the leaders of Japan and China they cannot continue to reduce the value of their currencies as doing so would be unfair to the United States.
“The fix has been sending a signal that policymakers continue to prefer currency stability,” Maybank analysts said in a note.
“That may be meant to maintain goodwill with Trump as well as a sense of stability for the financial markets as the Two Sessions in China kicks off with the start of the Chinese People’s Political Consultative Conference (CPPCC) today.”
Parliamentarians and political advisers gather in Beijing every March for two parallel sets of meetings called the Lianghui or “Two Sessions,” where key economic growth targets and the policy agenda will be unveiled.
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