SHANGHAI: China's yuan was modestly firmer on Tuesday after easing to a near three-week low against the dollar, as the greenback held steady amid concerns over trade and global growth.
Earlier losses in the Chinese currency were pared back on profit-taking in the greenback. The dollar is hovering close to its 2019 high underpinned by demand for safe-haven assets.
Market participants said the Sino-U.S. trade talks this week would be the key factor for the yuan's movements, and any developments in bilateral talks were likely to affect sentiment.
"We think the most likely outcome is no further increases in tariffs, but the existing ones will remain till China delivers on its promises," Irene Cheung, senior strategist for Asia at ANZ said in a note on Tuesday.
"It is likely that RMB will continue to trade on the back of U.S.-China trade developments through 2019. We continue to expect USD/CNH to range trade, but within a wider 6.60-6.95 range."
U.S. and Chinese officials expressed hopes that a new round of talks would bring them closer to easing their seven-month trade war, but a U.S. Navy mission sailing on Monday near islands claimed by China in the South China Sea cast a shadow over the negotiations in Beijing.
A trader at a domestic bank added that the Chinese authorities would likely hold the currency stable during major political events. Prior to market opening on Tuesday, the People's Bank of China (PBOC) set the midpoint rate at 6.7765 per dollar, the lowest since Jan. 25, and 270 pips or 0.4 percent weaker than the previous fix of 6.7495.
In the spot market, the onshore yuan opened at 6.7901 per dollar and fell to a low of 6.7965 at one point, the weakest since Jan. 24.
At midday, the onshore yuan was changing hands at 6.7878, 42 pips firmer than the previous late session close but 0.17 percent softer than the midpoint.
Several traders said the key 6.8 per dollar level still provides strong support for the yuan and prompted some investors to liquidate dollars which pulled the yuan away from near three-week lows.
Strategists at Morgan Stanley revised their yuan forecasts, expecting it to finish this year at 6.55 per dollar and 6.30 by end of 2020, according to a note published on Monday.
Separately, China's foreign exchange reserves rose slightly more than expected in January as the yuan rallied on hopes for progress in Sino-U.S. trade talks that could lift some pressure on the cooling Chinese economy.
Reserves rose $15.2 billion in January - the biggest increase in a year - to $3.088 trillion, data showed on Monday.
The offshore yuan was trading at 6.7974 per dollar at midday.
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