Yuan bounces back as trade war talks to get underway

China currency breaks losing streak over last six trading days as senior Chinese delegation plans to visit US to tackle trade dispute.

PUBLISHED : Thursday, 16 August, 2018, 1:09pm
UPDATED : Thursday, 16 August, 2018, 9:52pm

The Chinese yuan bounced back on Thursday morning as the US-China trade war showed signs of easing and the central bank set its mid price stronger than the market expected.

The offshore yuan, which is traded by international investors outside mainland China, was trading at 6.8844 yuan per dollar as of 7.30pm on Thursday Hong Kong time, up 0.9 per cent. That put an end to the losing streak in the previous six trading days.

On Wednesday, the currency had once dropped 0.9 per cent to a 20-month low at 6.9454 per dollar, the weakest since January 2, 2017, when it traded at 6.9729 per US dollar.

Onshore yuan, traded by mainland traders, closed on Thursday at 6.8960 yuan per dollar, up 0.5 per cent.

“The yuan has strengthened as a senior Chinese delegation will fly to the US later this month to negotiate about the trade war. This has given hope that the trade disputes between China and the US will be solved,” said Tommy Ong, managing director of treasury and markets at DBS Hong Kong.

Senior Chinese government delegation to visit US for trade war talks

Commerce Vice-Minister Wang Shouwen is to lead the delegation that will meet with US Treasury Undersecretary David Malpass to discuss “economic and trade issues between China and the US”, according to a statement issued by China’s Commerce Ministry on Thursday morning.

“In addition, the People’s Bank of China has set the yuan mid price at a level stronger than the market expected on Thursday morning, which signals the central bank would not like to see the yuan continue to fall further. This also added support to the yuan,” Ong said.

China’s central bank set the yuan mid price lower by 0.1 per cent to 6.8956 yuan per dollar on Thursday than Wednesday’s fix, which marks the seventh straight day it set the mid price lower. But the level is getting narrower than on Wednesday, when the central bank set the mid price weaker by 0.23 per cent from Monday. Traders can trade only up to two per cent higher or lower than the PBOC mid price during the day.

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Ong said the PBOC would not like to see the yuan to go further weaken beyond 6.95 level.

“The PBOC would take action to intervene the yuan if it would go closer to 7 yuan per dollar. The yuan has gone down more than 10 per cent from its peak this year. The companies which have US dollar debts would find it hard to support. There may also capital outflow amid a weaker yuan. The PBOC would not like to see the yuan go beyond 7 yuan per dollar,” Ong said.