Chinese yuan eases for sixth straight session, sliding 2 per cent in a week amid deepening US-China trade war

The Chinese yuan lost 2 per cent against the US dollar in the past week, falling for a sixth straight session on Thursday afternoon, as trade war concerns continued to weigh on sentiment, prompting rumours that the People’s Bank of China (PBOC) would take action to stabilise the currency.

The offshore yuan in Hong Kong eased to 6.5166 per US dollar in late afternoon trade, down 0.54 per cent from Wednesday’s close. The currency has dropped 1,290 basis points, or 2.02 per cent, from last Wednesday’s level of 6.3876 per dollar, wiping out almost all the gains this year.

“The worry of a trade war is to blame for the drop of the yuan. The US has threatened to impose tariffs on Chinese exports, which has led to worries about the outlook for the currency. This has led to selling pressure in the last week,” said Ben Kwong Man-bun, director of KGI Asia.

The yuan is currently down 4.3 per cent from this year’s high of 6.2352 per US dollar on March 27, and is threatening to breach the year’s lowest close of 6.5340 on January 9.

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The fall of the offshore yuan came after the PBOC set the currency midpoint lower by 120 basis points at 6.4706 yuan per US dollar on Thursday, a fresh five-month low. The lower setting follows a 351 basis point downward adjustment in the midpoint on Wednesday from the fix the previous day.

Since Tuesday, the midpoint has effectively been lowered by 0.7 per cent.

Chinese yuan softens to near-year low after PBOC sets midpoint down 351 basis points

Kwong said the PBOC is likely to continue to allow the yuan to fall in line with other major currencies against the US dollar.

“However, the PBOC would not allow the yuan to drop substantially against the US dollar. While a weaker yuan may boost exports, a devaluation of the currency would lead to capital outflows and would hurt yuan-denominated assets. The PBOC would likely introduce some measures or verbally support the yuan to prevent further devaluation,” Kwong said.

“Markets are likely to remain cautious, with any sign of escalating trade tensions between the US and China potentially sparking a renewed wave of risk aversion,” said Lukman Otunuga, research analyst at FXTM.

“The US dollar has scope to extend gains against a basket of major currencies amid market expectations over the Federal Reserve raising US interest rates at least two more times this year. Away from the fundamentals, the technical picture remains heavily bullish with prices hovering near an 11-month peak as of writing,” Otunuga said.