Yuan eased from 4-1/2-mth high as partial tariff rollback disappoints

• The United States will maintain 25% tariffs on $250 billion of Chinese imports while halving tariffs on $120 billion in products to 7.5%.
• The spot yuan hit a high of 6.9570 on Friday, the strongest level since Aug.2.
• Prior to market opening on Monday, the People's Bank of China (PBOC) lifted its official yuan midpoint to 6.9915 per dollar.

SHANGHAI: China's yuan eased from a 4-1/2-month high hit last week on Monday, as a some investors were disappointed that the United States had not rolled back tariffs further under a preliminary trade agreement agreed with Beijing.

The "phase one" U.S.-China trade deal will nearly double U.S. exports to China over the next two years and is "totally done" despite the need for translation and revisions to its text, U.S. Trade Representative Robert Lighthizer said on Sunday.

As part of the deal, the United States will maintain 25% tariffs on $250 billion of Chinese imports while halving tariffs on $120 billion in products to 7.5%.

Analysts and traders said the official announcement was more modest than news headlines were suggested.

Prior to market opening on Monday, the People's Bank of China (PBOC) lifted its official yuan midpoint to 6.9915 per dollar, 241 pips or 0.34% firmer than the previous fix of 7.0156 and the strongest since Aug.6.

Monday's official guidance rate was also the biggest daily uptick in percentage terms since Nov.6.

In the spot market, onshore yuan opened at 6.9990 per dollar and was changing hands at 6.9988 at midday, 32 pips firmer than the previous late session close.

The spot yuan hit a high of 6.9570 on Friday, the strongest level since Aug.2.

"We think 7 is the reasonable level based on the current marginal rollback of existing tariff," Tommy Xie, head of Greater China research at OCBC Bank in Singapore said in a note.

"Given both sides will prepare for the signature of the deal in early January, we expect RMB to consolidate around 7."

China let its currency weaken past the key 7-per-dollar level in early August for the first time in more than a decade, with market interpreting it as a sign that Beijing might be willing to tolerate more currency weakness to counteract the negative impact of the trade war with the United States.

"The truce on the U.S.-China trade war and China's binding commitment on CNY should help support the CNY, though this may have been largely priced in. We expect USDCNY to trade at 6.95 at end 2019 and hover around 7 in 2020 and 2021," Wang Tao, economist at UBS in Hong Kong said.

Traders often use the shorthand CNY and RMB interchangeably for the yuan.

The currency agreement contains pledges by China to refrain from competitive currency devaluations and to not target its exchange rate for a trade advantage.

A trader at a Chinese bank pointed out that the deal still lacked details, which could potentially bring volatility to the market when being disclosed.

The global dollar index fell to 97.062 at midday from the previous close of 97.172.

The offshore yuan was trading at 6.9972 per dollar as of midday.