People’s Bank of China lowers yuan fix to three-week low after fresh tariff salvo by Washington

Any heavy-handed response by China to Donald Trump’s new tariffs, such as flat-out import restrictions, could bring the big market ‘bears out of hibernation’, an analyst has warned

PUBLISHED : Tuesday, 18 September, 2018, 11:10am
UPDATED : Tuesday, 18 September, 2018, 11:43pm

China’s central bank lowered the daily yuan reference rate to its weakest level in over three weeks on Tuesday after US President Donald Trump announced overnight that America will impose a graduated tariff hike, starting with 10 per cent on about US$200 billion worth of Chinese imports before moving to 25 per cent at the start of 2019.

The US tariffs had already been well telegraphed to markets in the past week. The implementation of graduated hikes and the revised tariff list which excludes some consumer goods is milder than expected, analysts said.

Apple’s smartwatches, wireless earphones spared in latest US tariffs

A 10 per cent tariff will apply from September 24, eventually rising to 25 per cent on January 1, in a phased approach that will contain the rise of US inflation, and help some Chinese exporters, analysts said.

China’s Ministry of Commerce said on Tuesday it would be forced to take “synchronised counter measures” against the latest tariffs announced by Trump.

In a statement, the ministry also said that the tariffs had “added new uncertainties” to talks between the two sides.

Any heavy-handed response by China such as flat-out import restrictions could bring the big market “bears out of hibernation”, said Stephen Innes head of trading APAC at currency broker Oanda.

On Tuesday, the People’s Bank of China (PBOC) lowered the daily reference rate at 6.8554 per dollar, reflecting its weakest level since August 24. Traders are allowed to trade up to 2 per cent on either side of the reference point.

Onshore yuan traded on the mainland eased to 6.8769 per US dollar, approaching the psychologically important 6.9000 level. Offshore yuan traded in Hong Kong fell to its weakest in over three weeks, becoming the worst performer among 11 most traded Asian currencies.

“The yuan will continue to face downward pressure this week. But markets are watching to see if the PBOC will defend the 6.9 level, the same level it took action last time,” said Jimmy Zhu, chief strategist at Fullerton Markets.

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“China does not want a sharp fall in the yuan because that is very costly as it would trigger capital outflow fears and contagion to the capital markets.”

Earlier this month Trump had warned that he had further tariffs set for US$267 billion worth of Chinese goods, beyond the latest US$200 billion, which would engulf all remaining US imports from China, including Apple’s iPhone and competing smartphone makers.

Iris Pang, mainland China economist at ING Bank said China was unlikely to return to the negotiation table before the end of US midterm elections.

The booming real estate market will continue to provide support to China’s economy, removing imminent pressure for mainland trade officials to engage in trade talks with their American counterparts at this time, Pang said.