Chinese yuan fall amid worries the trade row could put the economy on the skids after a battering on Monday in an ominous start to July, days before US tariffs on Chinese exports are due to take effect. Investors are jittery ahead of a July 6 deadline when the United States is set to impose tariffs on $34 billion worth of goods from China, the epicentre of a heated trade dispute between Washington and major economies that has convulsed financial markets.
Beijing is expected to respond with tariffs of its own on US goods as the trade fight between the world two biggest economies threatens to damage global trade and investment.
There was little relief for investors in Chinese assets as, even before the tariffs kick in, a private survey showed manufacturing activity in the world's second-largest economy slowed slightly.
"Expectations for the country's economic growth have worsened a lot, as investors worry that external risks will increase in the second half of the year," said Zhu Xiaochun, an analyst with Lianxun Securities.
The yuan, fresh off its worst month on record, lost more ground against the dollar, trading at around 6.6549 at 0738 GMT from a close of 6.6225 on Friday.
Just before the markets opened, a private Caixin/Markit manufacturing survey showed factory growth in China cooled a touch in June, yet more worrisome was a contraction in new export orders for the third straight month and the most in two years.
The exports data provided a sobering reminder of the potential fallout of the intensifying Sino-US trade dispute, which investors fear will ripple through global supply chains in a blow to world growth.
The yuan fell more than 3 percent against the dollar in June and continued its slide despite a firmer-than-expected midpoint set by the central bank on Monday.
If the yuan's decline intensifies, Morgan Stanley economists wrote in a note on Monday that the Chinese central bank, the People's Bank of China (PBOC), may step up intervention.
"CNY may overshoot with shifting market expectations of policy stance amid higher trade tensions, but we don't expect policymakers to encourage material RMB depreciation. The PBOC could step up intervention if depreciation risk intensifies," they wrote.
On Friday, the last trading day of the month, ING lowered its yuan forecast to 7 per dollar by the end of the year from a previous forecast of 6.6, citing risks to the policy outlook.
"A weaker currency would, at most, be a shield, safeguarding wider damage from a trade war and the hurdles faced by Chinese companies' operating in the US," it said. ING added it did not see any panic in the market.
ING's shift follows a similar move on June 24 by Deutsche Bank, which said it expected the yuan to depreciate to 6.8 per dollar by the end of this year and 7.2 by the end of 2019. It had previously forecast 6.4 yuan per dollar in each year.
Chinese 10-year treasury futures for September dipped in the morning but reversed course in the afternoon to inch up about 0.13 percent.
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