SHANGHAI: China's yuan eased against the dollar in thin trade on Monday, pressured in part by escalating tensions between Beijing and Washington, while uncertainty over the policy outlook for major central banks kept investors in a cautious mood.
The addition of seven Chinese supercomputing entities to a US economic blacklist reinforced a difficult backdrop for relations between the two nations on a range of issues.
Sino-US tensions have been a major pressure point on the yuan since the outbreak of the trade war in 2018.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.5578 per dollar, 169 pips or 0.26% weaker than the previous fix of 6.5409.
In the spot market, onshore yuan opened at 6.5570 per dollar and was changing hands at 6.5542 at midday, 12 pips weaker than the previous late session close.
Several currency traders said investors were watching for clues on any imminent changes to monetary policy stances at major central banks.
A trader at a Chinese bank said domestic market participants were eagerly looking out for PBOC's policy signal as the central bank was set to roll over maturity of a key liquidity tool this week.
"With tax seasons and also likely pick-up in local government bond issuances, the medium-term lending facility (MLF) can be easily rolled over if the PBOC chooses to do so," said Frances Cheung, rates strategist at OCBC Bank.
"Money market liquidity shall stay supported as the PBOC has tools to deploy."
A batch of 100 billion yuan ($15.26 billion) worth of MLF, which serves as a guide to China's benchmark lending rate, is set to expire on Thursday. And the PBOC has kept injecting a minimum of daily 10 billion yuan through reverse repos for 30 straight days as of Monday.
Li Liuyang, chief currency analyst at China Merchants Bank, said coronavirus rollouts in Europe and the United States would remain the key factors influencing currency markets.
"If the pandemic situation in Europe can improve quickly and EU's recovery fund can be implemented smoothly, the European Central Bank will start to become more concerned about the upward inflation than the Fed, which will provide support for the euro," he said.
Li said the euro's recent rebound eased appreciation pressure on the yuan's value against its trading partners and kept the Chinese currency stuck in a 6.5 to 6.6 per dollar range for the time being.
The dollar languished near 2-1/2-week lows against major peers on Monday as a decline in Treasury yields restrained the US currency.
The global dollar index traded at 92.249 at midday, while the offshore yuan was trading at 6.5595 per dollar.