China's yuan edges up, likely to ease in long run on trade dispute

[SHANGHAI] China's yuan edged up against the US dollar on Monday, as weaker than expected US jobs data and persistent worries about a trade dispute between Beijing and Washington weighed on the greenback.

The US dollar steadied in the Asian session, having retreated late last week due to concerns trade tensions and following data that showed the US economy created the fewest jobs in six months in March.

But while trade Sino-US frictions have been bearish for the US dollar in recent trading sessions, analysts expect they could hit sentiment toward the yuan harder in the longer-term. The latest Reuters poll of nearly 70 foreign exchange strategists conducted April 3-6 showed that the yuan was forecast to shrug off some of the gains it booked so far this year and fall 0.8 per cent to 6.35 per US dollar in a year.

Prior to market opening on Monday, the People's Bank of China set the midpoint rate at 6.3114 per US dollar, 188 pips or 0.3 per cent weaker than the previous fix of 6.2926 on April 4.

Monday's official guidance rate was the weakest since March 26.

In the spot market, the onshore yuan opened at 6.3005 per US dollar and was changing hands at 6.2962 at midday, 65 pips firmer than the previous late session close and 0.24 per cent stronger than the midpoint.

China's swift retaliation against the United States'proposed tariffs last week soured the mood and hit market sentiment toward the yuan.

While sentiment has recovered slightly since then, a trader at a Chinese bank in Shanghai said the market remained cautious and expects the yuan to trade around 6.3 per US dollar level in near term.

Tommy Xie, an economist at OCBC Bank in Singapore also said the yuan's recent movements hinge on market expectation on China's possible reaction to the trade tension.

"If China is likely to compromise, RMB may appreciate. However if China decides to fight to the end, RMB may depreciate," Mr Xie said in a note.

Market participants have now switched their attention to Chinese President Xi Jinping's keynote speech at Boao Forum for Asia on Tuesday, where he is expected to unveil fresh market-opening measures.

The Chinese currency weakened 0.45 per cent versus the greenback last week, but only edged down 0.11 per cent on a trade-weighted basis against a basket of its trading partners' currencies, according to official data from the China Foreign Exchange Trade System (CFETS).

The index, published on a weekly and monthly basis, stood at 96.62 by the end of last week.

A researcher at the government-run China Academy of Social Sciences said at Boao Forum for Asia relieving some market worries that China is unlikely to sell off its holdings of US Treasury bonds at a large scale as a tactic in its trade dispute with the United States.

Separately, China's foreign exchange reserves rose slightly in March, official data showed on Sunday, as broad US dollar weakness continued and escalating trade tensions between the world's two largest economies bolstered expectations of a firmer Chinese currency.

Reserves rose US$9 billion last month to US$3.143 trillion, compared with a drop of US$27 billion in February, central bank data showed.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.64, firmer than the previous day's 97.56.

The global dollar index rose to 90.173 from the previous close of 90.108.

The offshore yuan was trading 0.05 per cent firmer than the onshore spot at 6.293 per US dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.384, 1.14 per cent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

REUTERS