China's yuan weakens for 2nd day on firmer US dollar, Trump trade fears

[HONG KONG] China's yuan weakened for a second straight day on Friday and traders braced for further depreciation amid rising uncertainty about US policies, particularly on trade with China, under President-elect Donald Trump.

Mr Trump's surprise victory in elections this week has fuelled worries in Asia's trade-reliant economies that he may follow through on some of his protectionist rhetoric such as imposing punitive tariffs, with China seen as the most vulnerable in the region.

The US has the biggest trade deficit with China.

In addition, expections of higher interest rates during Mr Trump's term have buoyed the US dollar against other currencies.

"The PBOC is caught between a rock and a hard place in the face of a strong US dollar and huge waves of capital outflows," said Stephen Innes, senior trader at OANDA.

"I suspect if, or when, any global trade policies are implemented, they would be executed in a very controlled fashion to have limited impact on the global economy.

The People's Bank of China set the midpoint rate at 6.8115 per US dollar prior to the market open, weaker than the previous fix of 6.7885.

The spot market opened at 6.8076 per US dollar and was changing hands at 6.8118 at midday, 28 pips away from the previous late session close and 0.00 per cent away from the midpoint.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.95, firmer than the previous day's 94.7.

The global US dollar index fell to 98.665 from the previous close of 98.785.

The offshore yuan was trading -0.27 per cent away from the onshore spot at 6.83 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 7.0205, -2.98 per cent away from the midpoint.

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

REUTERS