Markets

Yuan touches 1-month low as tensions rise ahead of U.S.-China trade talks

U.S. officials said the two sides would still hold high-level talks on Thursday and Friday, days before Washington
Published October 9, 2019
  • U.S. officials said the two sides would still hold high-level talks on Thursday and Friday, days before Washington is set to hike tariffs on Chinese goods.
  • "The re-escalating China-U.S. tensions could spoil the trade deal and the spillover of China-U.S. conflicts to financial and tech sectors would fuel global recession risks,"

HONG KONG: The yuan weakened to a one-month low in early trade Wednesday as U.S.-China tensions rose ahead of high-level trade talks, but it recouped losses by midday as investors waited for news from the negotiations.

Hopes of progress in ending the trade war, never high to begin with, receded after Washington imposed visa restrictions on Tuesday on Chinese officials for the detention or abuse of Muslim minorities.

It had blacklisted some Chinese companies, citing the same issue, a day earlier.

U.S. officials said the two sides would still hold high-level talks on Thursday and Friday, days before Washington is set to hike tariffs on Chinese goods.

"The re-escalating China-U.S. tensions could spoil the trade deal and the spillover of China-U.S. conflicts to financial and tech sectors would fuel global recession risks," Ken Cheung, chief Asian FX strategist at Mizuho Bank, wrote in a note on Wednesday.

At midday, spot yuan opened at 7.1530 to the dollar, its weakest level since Sept. 6. But by midday it was largely unchanged at 7.1436. The offshore yuan, which digested the negative news overnight, firmed 0.2pc.

"Although the headlines were relatively negative, there is no material impact on the trade talks," said a Shanghai-based trader with a Chinese bank, adding that U.S. actions this week were likely negotiating tactics.

The daily guidance rate by the People's Bank of China (PBOC) also tamed depreciation expectations, two other traders in Shanghai said.

The central bank set the midpoint rate at 7.0728 prior to the market open, just a touch weaker than the previous fix of 7.0726 but much firmer than Reuters' estimate of 7.0929.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 91.07, weaker than the previous day's 91.3.

The global dollar index fell to 99.089 from the previous close of 99.133.

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 7.2008, 1.78 percent weaker than from the midpoint.

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

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