China’s yuan firms, liquidity pressure eases, traders eye on post-holiday conditions

SHANGHAI: China’s yuan firmed against the dollar on Tuesday after the central bank fixed the official yuan midpoint at the strongest level in more than two months, thanks to a broad slide in the greenback pressured by concerns over the impact of US President Donald Trump’s protectionist stance on trade.

The People’s Bank of China ( PBOC) set the midpoint rate at 6.8331 per dollar prior to the market open, some 241 pips, or nearly 0.4 per cent, stronger than the previous fix of 6.8572.

But in a reflection of lingering market pessimism over the yuan’s direction, traders said banks’ clients quickly took advantage of the cheaper dollar and rushed to stock up on the greenback in early trade, dragging the spot yuan rate down.

Spot yuan opened at 6.8455 per dollar and was changing hands at 6.8509 at midday, 31 pips firmer than the previous late session close but 0.26 per cent weaker than the midpoint.

The offshore yuan was trading at 6.8120 per dollar, 0.57 per cent firmer than the onshore spot.

The dollar fell after Trump formally withdrew the United States from the Trans-Pacific Partnership ( TPP) trade deal on Monday, distancing America from its Asian allies, as China’s influence in the region rises.

He also pledged to renegotiate the free trade agreement between the United States, Canada and Mexico. A gauge measuring dollar strength against six other currencies fell below 100 to hit 99.899 at one point overnight to hit its weakest level since Dec. 8. It was trading at 99.969 as of midday, compared with the previous close of 100.16.

Some analysts said the volatility in the dollar would not reverse expectations for a rising dollar over the long run, showing depreciation pressure on the Chinese currency may reignite.

“Closer to mid-April, fears will probably return if the U. S. Treasury Department will name China a currency manipulator in its semi- annual currency report,” DBS Group Research said in a note on Tuesday.