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Yuan eases on weaker fixing, not yet affected by escalating trade tensions
[SHANGHAI] China's yuan eased against the US dollar on Wednesday after the central bank set a weakened official guidance rate, while the market does not yet appear to have been affected by escalating trade tensions between the world's two largest economic powers.
Traders said market sentiment on Wednesday morning was not been influenced by news that the Trump administration raised the stakes in a growing trade dispute with China, announcing 25 per cent tariffs on some 1,300 industrial technology, transport and medical products in an attempt to force changes in Beijing's intellectual property practices.
China quickly responded that it would soon take measures of equal intensity and scale against US goods.
The US dollar eased against the safe haven yen but remained largely stable against its major trading partners on Wednesday morning on worries over escalating trade tensions.
Prior to market opening, the People's Bank of China set the midpoint rate at 6.2926 per US dollar, 93 pips or 0.15 per cent weaker than the previous fix of 6.2833.
In the spot market, the onshore yuan opened at 6.2895 per US dollar and was changing hands at 6.2911 at midday, 51 pips weaker than the previous late session close.
If the yuan finishes the late night session at the midday level, it would have lost 0.26 per cent to the US dollar in a holiday-shortened week. It would be the first weekly loss since mid-February.
A trader at a Chinese bank said given the global dollar index was swinging around 90 level in recent sessions, the yuan lacked momentum to breach the current range.
The global US dollar index, a gauge that measures the unit's strength against six other currencies stood at 90.08 as of midday, compared with the previous close of 90.2.
Some traders said investors were unwilling to figure out a clear direction in the yuan before the holiday and expected the yuan to trade between 6.25 and 6.3 per US dollar in the near term.
Traders were not holding large positions for their proprietary trades ahead of China's tomb-sweeping festival Qingming, for which markets will be closed on Thursday and Friday.
Although the spot yuan rate has not reacted to the rising trade tensions between the United States and China, some analysts said China might lose the most if a major trade war breaks out.
"We continue to expect China will avoid escalating the rift (for now) and adopt processes (lip service or otherwise) to address US concerns, including allowing for yuan strength," Sue Trinh, head of Asia EMFX strategy at Royal Bank of Canada in Hong Kong said in a note on Wednesday.
"As such, we doubt the worst case trade war scenario will be unfolding just yet."
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.63, firmer than the previous day's 97.59.
The offshore yuan was trading 0.14 per cent stronger than the onshore spot at 6.2825 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 6.376, 1.31 per cent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.