Yuan hits 13-month low amid US trade tensions

Market sentiment remains stable despite recent sharp losses

China’s yuan fell to a fresh 13-month low against the dollar on Monday, weighed by a much weaker central bank fixing and expectations the Chinese currency has further to fall as US trade tensions worsen.

In addition to developments in the global trade environment, investors are focusing on the amount of liquidity policy makers have injected into the financial system.

“Together with announcements by the People’s Bank of China [PBC] that will ease credit conditions, and a more gradual shift in the monetary stance over the last two months, this represents a significant change towards more accommodative policy,” analysts at Moody’s said in a note.

Prior to market opening, the PBC lowered the midpoint rate to 6.8131 per dollar, largely matching market forecasts, 189 pips or 0.28 percent weaker than the previous fix of 6.7942 last Friday.

In the spot market, the onshore yuan opened at 6.8159 per dollar and eased to a low of 6.8401 before changing hands at 6.8359 during the afternoon trading session, 0.33 percent weaker than the previous late session close.

The onshore spot yuan hit its lowest intraday level since June 27, 2017.

The offshore yuan was trading around 6.8446 per dollar.

Despite the recent sharp losses in the yuan, market sentiment remains relatively stable, traders said, adding there was some month-end dollar demand from their corporate clients in morning trade on Monday.

A trader at a Chinese bank in Shanghai said the next resistance for the yuan is likely to be 6.9 per dollar.

Strategists at DBS Group Research have recalibrated their forecast for the yuan to end 2018 to 6.90 per dollar, with the dollar likely to strengthen on the US Federal Reserve’s monetary tightening and more trade tensions in the second half of the year.

However, the yuan’s implied future value against the dollar continued to rise in the forward market on Monday.

Analysts and yuan traders attributed the falls in forward points to loose yuan liquidity and major State-owned banks’ swapping dollar for yuan flows.