SHANGHAI: The yuan edged lower against the dollar on Tuesday on growing doubts over whether the leaders of China and the United States will be able to reach an agreement later this week to de-escalate their bitter trade dispute.
In an interview with the Wall Street Journal, U.S. President Donald Trump said he expects to move ahead with raising tariffs on $200 billion in Chinese imports to 25 percent from 10 percent currently.
Trump also said it was "highly unlikely" he would accept China's request to hold off on the increase, which is set for Jan. 1
Trump and Chinese President Xi Jinping will hold high-stakes talks on the sidelines of a G20 summit in Argentina on Friday and Saturday, their first face-to-face meeting since the two sides began launching a series of tit-for-tat tariffs on each other's goods.
Most analysts believe the chance of a breakthrough deal is slim at best, but they say any commitment by Trump and Xi to further negotiations could spark a relief rally in financial markets.
However, losses in the spot yuan were marginal as cautious traders have already liquidated most of their positions ahead of the meeting.
"The market was calm and awaits the outcome of the G20 meeting. But the outlook is not quite optimistic," said a senior trader at a Chinese bank.
Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong said he suspects investors "have got prepared for the comprehensive tariffs implementation next year, or take Trump's threat as a negotiation tactic before the trade talks".
Cheung expects the yuan to stay above 7 per dollar for the rest of this year, but others believe it is likely to test and breach that level in coming months if the U.S. proceeds with the Jan. 1 tariff hike and China retaliates.
Prior to the market opening on Tuesday, the People's Bank of China (PBOC) set the midpoint rate at 6.9463 per dollar prior to market open, weaker than the previous fix 6.9453.
In the spot market, the onshore yuan opened at 6.9476 per dollar and was changing hands at 6.9440 at midday, 35 pips weaker than the previous late session close.
Stephen Innes, head of trading for Asia Pacific at OANDA in Singapore, said he expects the yuan will be one of the issues raised at the leaders' meeting.
"I think there is a sense perhaps that one of the big issues on G20 discussion will be currency, and I think this is a big one where there could be a high degree of compromise from the PBOC," he said.
"In the sense they would be happy to keep the yuan trading on a more positive tone for tariff concessions."
The U.S. government refrained from naming China or any other trading partner as a currency manipulator in its latest semi-annual currency report but reiterated concerns over yuan depreciation, which will likely exacerbate the U.S. trade deficit.
The yuan largely ignored downbeat October industrial profit data, which showed profit growth slumped for a sixth straight month.
The offshore yuan was trading at 6.9434 per dollar as of midday.
Comments
Comments are closed.