SHANGHAI: China's yuan inched up against the dollar on Monday amid thin trade as investors awaited a meeting between Chinese President Xi Jinping and U.S. President
Donald Trump, which could set the tone for the two countries' trade relations.
The two leaders are likely to discuss trade at a summit in Argentina later this week. However, investors don't expect any major resolution to ongoing Sino-U.S. trade tensions.
Many yuan traders expect the Chinese unit to track the dollar's movements in the near-term. On Monday, the yuan found modest support against the greenback as corporate traders sold the dollar to square positions ahead of month-end.
"There remains an outsized focus on the Xi-Trump meeting that is completely overshadowing the events at G20. Frankly, no one is talking about (anything) other than that meeting," Stephen Innes, head of trading for Asia Pacific at OANDA said in a note.
Prior to the market open on Monday, the People's Bank of China set the midpoint rate at 6.9453 per dollar, weaker than the previous fix of 6.9306.
In the spot market, the onshore yuan opened at 6.9455 per dollar and was changing hands at 6.9436 at midday, 63 pips firmer than the previous late session close.
With no sign of a let-up in the Sino-U.S. trade war since April, investors are betting on more weakness ahead and expect authorities will eventually allow the yuan to breach the key 7 to the dollar level for the first time since the global financial crisis.
The Chinese yuan has lost about 10 percent to the dollar since the beginning of April and is down 6.3 percent so far this year.
Capital Economics said the planned meeting between the two leaders was unlikely to deliver a lasting solution, but a ceasefire could reduce "some of the current pressure" on the yuan.
"The renminbi would still face headwinds from a further divergence in U.S. and Chinese monetary policy. And the PBOC would not want to reintroduce an effective peg at 7.0 per dollar," they said in a note, expecting the yuan to breach the key level early next year.
The offshore yuan was trading at 6.9397 per dollar as of midday.
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