PBOC signals unease with yuan weakness spurred by tariff threat
Beijing may weaken the currency to make Chinese exports more competitive and help offset some of the potential tariffs
CHINA indicated its discomfort with yuan weakness through its daily reference rate for the currency amid the threat of higher US tariffs under a Donald Trump administration.
The People’s Bank of China set its reference rate for the yuan at 7.1991 per dollar, 445 pips stronger than the average estimate in a Bloomberg survey. The gap between the fixing and estimate was the widest since early August.
The yuan fell to a three-month low on Tuesday (Nov 12) after the so-called Trump trade boosted the dollar to a two-year-high. Concern that Trump’s administration would impose 60 per cent tariffs on Chinese goods, decimating US-China trade is also a drag on the currency.
The PBOC in recent days had refrained from sending any strong signals in support of the yuan and more than half of the respondents in a Bloomberg survey had said Beijing may weaken the currency to make Chinese exports more competitive and help offset some of the potential tariffs.
“This is the first sign of the authorities showing some intolerance of recent dollar/onshore yuan gains via the fixing,” said Eddie Cheung, senior strategist at Credit Agricole CIB in Hong Kong.
The fixing, which limits moves in the onshore yuan by 2 per cent on either side, is PBOC’s most frequently-used tool to manage the currency. However, the yuan was also supported by dollar selling from banks including state-owned ones after market open, according to traders who asked not to be named as they aren’t authorised to speak publicly.
The offshore yuan flipped to a gain following PBOC’s fixing. It rose 0.1 per cent to 7.2341 per dollar at 10:15 am in Hong Kong. The onshore yuan was up 0.2 per cent.
The PBOC’s move on Wednesday may be aimed at deterring further yuan weakness, said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp in Singapore. However, “Trump trade momentum may mean that dollar-offshore yuan remains better bid on dips.” BLOOMBERG
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