SHANGHAI: China's yuan firmed against the dollar on Tuesday, as sentiment improved slightly after Washington temporarily eased restrictions on Huawei, while a firmer-than-expected official midpoint discouraged bets against the renminbi.
The U.S. government on Monday allowed Huawei Technologies Co Ltd to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets until Aug. 19.
The U.S. move eased some worries that Sino-U.S. trade tensions would be further inflamed and inflict deeper losses on the Chinese currency. The yuan has dropped around 2.5 percent since U.S. President Donald Trump said on May 5 he was going to raise tariffs on $200 billion of Chinese imports.
Prior to market opening, the People's Bank of China (PBOC) lowered the midpoint rate for a ninth straight day to a fresh nearly five-month low of 6.8990 per dollar, 2 pips weaker than the previous fix of 6.8988.
However, traders said recent official fixings had come in persistently higher than consensus. They expected the fixing to be weaker than the key 6.9 per dollar level on Tuesday.
The firmer-than-expected official guidance rate suggested the authorities might be uncomfortable with the yuan's rapid slide and aimed to slow its depreciation. On Tuesday, the midpoint was 69 pips firmer than Reuters' estimate of 6.9059.
In the spot market, onshore yuan opened at 6.9094 per dollar and was changing hands at 6.9024 at midday, 109 pips firmer than the previous late session close and 0.05 percent softer than the midpoint.
Traders said the firmer-than-expected fixing and the central bank's recent pledge to keep the yuan stable kept a floor under the currency.
"It feels like the central bank will step in to prop up the yuan directly very soon," said a trader at a Chinese bank.
Several traders said there are concerns major state-owned banks, who often act on behalf of the PBOC in the foreign exchange market, will sell dollars if the yuan continues to drift towards the psychologically key 7 per dollar mark.
"If more substantial pressures were to emerge - for instance if the threshold of 7 to the U.S. dollar were to be threatened again - we would expect the PBOC to intervene in order to dampen those pressures," Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, said in a note.
Pan Gongsheng, deputy governor of the PBOC, told the PBOC-run Financial News in an interview on Sunday that the central bank was confident of its ability to maintain stable operations in China's foreign exchange market.
Pan also reiterated that the central bank will keep the yuan basically stable at reasonable and balanced levels. As of midday, the offshore yuan was trading at 6.9265 per dollar.
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