Yuan hits 5-1/2-week lows as Trump heightens tariff threat


HONG KONG — The yuan dropped to its weakest

level since late October on Wednesday as U.S. President Donald

Trump once again threatened to extend the 17-month long trade

war with China, raising the specter of fresh tariffs on Chinese

goods within weeks.

Trump said on Tuesday a trade agreement with China might

have to wait until after the U.S. presidential election in

November 2020, declaring “I have no deadline” to seal such a

deal.

Planned tariffs on Chinese imports will be imposed on Dec.

15 unless there is some real reason to postpone, such as

substantive progress in talks, U.S. Commerce Secretary Wilbur

Ross told CNBC on Tuesday.

The renewed fears over the fluid situation around the trade

talks were enough to hurt the offshore yuan, which

crumbled 0.6% on Tuesday evening to its weakest level since Oct.

18. It was still down 0.1% at 7.0721 as of midday on Wednesday.

The onshore yuan opened on Wednesday at its softest

since Oct. 25, and was off by more than 0.1% at 7.0691 per

dollar at midday.

“If Dec. 15 tariffs go live, markets may quickly extrapolate

further escalation in tariffs pushing USD/CNH towards 7.30,”

Citi’s analysts wrote in a note on Wednesday.

“While on the other hand if the expectations of potential

tariff rollback take a firmer hold then USD/CNH may quickly dip

towards 6.90,” they added.

Sources in Beijing and Washington familiar with the talks

said that the two countries are still wrangling over several

issues, including whether existing U.S. tariffs will be removed

and specific levels of Chinese purchases of U.S. agricultural

products as part of a “phase one” trade deal.

The protracted trade war is taking a toll on the Chinese

economy, with a Reuters analysis on Wednesday showing that

capital investment by Chinese firms has ground to its slowest

pace in three years.

Traders in China said uncertainty will remain around the

yuan’s outlook ahead of next year’s U.S. presidential election.

“It’s almost election time, we can’t believe anything. Maybe

tomorrow the talks will be sorted. Anything is possible right

now,” one Shanghai-based trader said of the election risk.

Prior to the open, the People’s Bank of China set the

midpoint rate at 7.0382 per dollar prior to market

open, softer than Reuters’ estimate of 7.0325.

The Thomson Reuters/HKEX Global CNH index, which

tracks the offshore yuan against a basket of currencies on a

daily basis, stood at 91.68, weaker than the previous day’s

92.02.

The yuan market at 4:03AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 7.0382 7.0223 -0.23%

Spot yuan 7.0691 7.061 -0.11%

Divergence from 0.44%

midpoint*

Spot change YTD -2.77%

Spot change since 2005 17.08%

revaluation

Key indexes:

Item Current Previous Change

Thomson 91.68 92.02 -0.4

Reuters/HKEX

CNH index

Dollar index 97.729 97.737 0.0

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2 percent from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 7.0721 -0.04%

*

Offshore 7.1425 -1.46%

non-deliverable

forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

(Reporting by Noah Sin

Editing by Shri Navaratnam)

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