Yuan slips to 2½-week low as oil plunge saps risk taking

Shanghai

CHINA'S yuan eased to a 2½-week low against a buoyant US dollar on Tuesday, as investors fled to safety after crude prices turned negative for the first time in history.

Traders said risk sentiment took a hit after the historic plunge in crude futures as the coronavirus pandemic sapped demand for fuel and caused massive disruptions in the global economy.

Strength in the US dollar from safety flows and worries about the health of North Korean leader Kim Jong Un added more pressure on the Chinese currency.

The onshore yuan opened at 7.0840 per US dollar and slipped to a low of 7.0924 at one point, the weakest since April 3.

At midday, spot yuan was changing hands at 7.0872, 136 pips weaker than the previous late session close.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.0752 per US dollar, 95 pips or 0.13 per cent weaker than the previous fix of 7.0657, the weakest since April 7.

"Apart from a rebound in the dollar, the slow recovery in the Chinese economy in the second quarter dragged by exports ... dented corporate supply of dollars in the market," Li Liuyang, analyst at China Merchants Bank, said in a note.

"And expectations for lower interest rates in China would also have a negative impact on the exchange rate." He expects the yuan to fall to the weaker side of 7.1 in April and May.

China cut its benchmark lending rate as expected on Monday to reduce borrowing costs for companies and prop up the coronavirus-hit economy, after it contracted for the first time in decades. Economists widely expect China will roll out more stimulus measures in the near term. REUTERS