Yuan wobbly amid renewed trade tensions

Market sentiment hit by worries Washington could slap new round of tariffs

The yuan was largely steady against the dollar during Monday afternoon trading after recovering from early losses, but renewed trade tensions between China and the US kept investors in a state of heightened anxiety.

US President Donald Trump is likely to announce the new levies as early as Monday, a source told Reuters. The tariff level will probably be about 10 percent, the Wall Street Journal (WSJ) reported, below the 25 percent level the administration had said it was considering.

The WSJ also reported that China may decline to attend trade talks due next week as Beijing won’t negotiate under threat.

Traders said developments around the China-US trade war remained the main driver of the yuan, with sentiment hit by news that Trump might slap fresh tariffs on a further $200 billion worth of Chinese goods at any moment.

Prior to the market opening on Monday, the People’s Bank of China (PBC), the country’s central bank, set the midpoint rate at 6.8509 per dollar, 147 pips or 0.2 percent weaker than the previous fix of 6.8362.

A trader at a Chinese bank said the firmer fixing bias suggests the authorities’ determination to stabilize the local currency amid the worsening trade conflict. Chinese authorities have taken steps in the past few months to rein in yuan depreciation pressure, making it a costly exercise for traders to bet against it.

In the spot market, the onshore yuan opened at 6.8705 per dollar and weakened to a low of 6.8756 before changing hands around 6.8701 during the afternoon trading session.

Tommy Xie, economist at OCBC bank in Singapore, said Chinese regulators’ tweaks to monetary policy might put more pressure on the yuan.

“It seems China is still trying to achieve an unsustainable balance between easing liquidity and currency stability. Should China decide to continue pumping the market with liquidity, RMB may face renewed downward pressure,” Xie said in a note on Monday.

Earlier in the session, the PBC said it lent 265 billion yuan ($38.5 billion) to financial institutions via its one-year medium-term lending facility (MLF).

The rates were unchanged, but the move was unexpected given no MLF loans were due to mature on Monday.