SHANGHAI: China’s yuan was little changed on Monday following a six-session rising streak, as the dollar stabilized and growing trade tensions added to concerns that the local currency’s recent surge is overdone.
Moreover, Monday’s reduction in China’s 14-day policy loan rate strengthens expectations of further monetary easing, pushing down the 30-year yield to a record low - a reminder for traders of China’s yield disadvantage despite the outsized U.S rate cut last week.
The yuan changed hands at 7.0469 around midday, barely moved from the prevision session’s close.
It has gained more than 3% since late July against a slumping dollar, and is now hovering near 16-month highs.
“This round of yuan appreciation was mainly driven by the dollar’s weakness,” Cai Shaoli, analyst at Huaitai Futures, said in a note.
Despite short-term improvement in corporate yuan demand, the longer-term trend of the currency will be still determined by fundamentals, and the risks of global trade is rising, he said.
“This means after the recent gains, the yuan will likely see two-way fluctuation in future.”
The world’s second largest economy is battling deflationarypressures, and struggling to lift-off despite a series of policy measures aimed at spurring domestic spending. Export is a rare bright spot in China’s economy, but faces headwinds as trade tensions flare up.
The U.S. Commerce Department is expected on Monday to propose prohibiting Chinese software and hardware in connected and autonomous vehicles on American roads due to national security concerns, escalating U.S. moves to curb Chinese exports.
Morgan Stanley said in a note on Monday that it no longer forecasts depreciation of the yuan, but predict the Chinese currency will stabilize at around 7.10 per dollar towards year end.
Even after last week’s rate cut, the U.S. still enjoys a yield advantage over China, and traders expect China to ease monetary conditions further.
The yield on China’s benchmark 30-year government bond fell to a record low of 2.13% on Monday, after China’s central bank supplied 14-day cash to its banking system at a lower interest rate.