SHANGHAI: China’s yuan hovered near a more than two-week high against the dollar on Monday, although uncertainty surrounding Sino-US trade tensions restricted the currency’s upside potential.
Traders said the yuan’s movements were following the dollar’s weak performance, as the US currency tumbled after investor confidence in the US economy was shaken by President Donald Trump’s plans to overhaul the Federal Reserve.
By 0342 GMT, the onshore yuan was 0.17% firmer at 7.2868 per dollar, not far from a two-week high of 7.2855 reached on Friday.
Its offshore counterpart climbed to a one-week high of 7.2879 per dollar in morning deals before trading at 7.2890 around midday.
However, market participants remained cautious due to ongoing trade tensions between Washington and Beijing, and refrained from pushing the yuan to new highs.
China on Monday warned countries against striking a broader economic deal with the United States at its expense, escalating its rhetoric in the intensifying trade war between the world’s two biggest economies.
“If there is positive progress between China and the United States on tariff issues, the yuan exchange rate will gain some support,” said analysts at China International Capital Corporation (CICC).
“Otherwise, the yuan may still face certain depreciation pressure due to cross-border capital outflows,” they said, expecting the yuan to fluctuate between 7.28 and 7.33 per dollar this week.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.2055 per dollar, 833 pips firmer than a Reuters’ estimate of 7.2888.
This month, the PBOC slightly eased its control on the currency, allowing official guidance to weaken past the key threshold of 7.2.
However, it came in stronger than market forecasts, which traders interpreted as an official attempt to keep the yuan steady while allowing some flexibility to counteract tariff shocks.
China’s yuan rises to 2-week high on hopes of de-escalation in US-China tensions
Nonetheless, the yuan’s value against the its major trading partners, as measured by the CFETS yuan basket index, fell to a new 21-month low of 95.97, according to Reuters calculations based on official data.
The CFETS index has lost about 5.42% year-to-date, while the yuan was up about 0.18% against the dollar during the same period.
Separately, China kept benchmark lending rates steady on Monday for the sixth successive month, aligning with market expectations.
But analysts and traders anticipate that monetary easing measures could be rolled out soon to support the economy.
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