YUAN HITS 11-YEAR LOW AGAINST US$

Trade dispute weighs on sentiment despite support from China state banks

CHINA’S yuan fell to fresh 11-year lows against the US dollar yesterday amid worries about the deepening Sino-United States trade war, despite support from major state-owned banks in both the spot and forwards markets.

Spot yuan ended the domestic session down 0.34 per cent at 7.0875 per US dollar, its weakest such close since March 14, 2008.

Traders said sentiment was fragile, with recent headlines offering little hope of a US-China trade deal anytime soon and new US levies on Chinese goods set to go into effect on Sept 1.

China hoped the US would stop its wrong tariff action, said the commerce ministry yesterday, adding that the imposition of any new tariffs would lead to retaliatory actions.

US President Donald Trump said on Wednesday he was “the chosen one” to address trade imbalances with China, even as congressional researchers warned that his tariffs would hurt the American economy.

“The market pays very close attention to the China-US trade dispute, and its impact on the yuan is much heavier than other factors,

such as economic fundamentals,” said a trader at a Chinese bank, here.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.049 per US dollar prior to market open, weaker than the previous fix of 7.0433.

State-run banks were seen receiving US dollar liquidity in the forwards market before selling the greenback in the onshore spot market, said two traders.

One of them said state banks were seen selling US dollars at around 7.07 yuan in the spot market to prevent sharper losses in the local unit.

The moves injected a note of caution into the market, fuelling speculation that authorities might be trying to put a floor under the yuan, the trader added.

But selling picked up again in the afternoon, prompting investors to place stop-loss orders in their shor t p o sitions, according to a trader at a Chinese bank.

Serena Zhou, China economist at Mizuho Securities in Hong Kong, said the break of the closely watched 7.0 level had given the yuan more flexibility.

She expects more yuan weakness in coming months.