May 6, 2020 / 6:12 AM / a month ago

Yuan eases to 1-month low over renewed Sino-U.S. tensions

    SHANGHAI, May 6 (Reuters) - The yuan weakened to a one-month
low against the dollar before paring some of the losses by
midday on Wednesday, the first trading session after an extended
Labor Day break, pressured by  renewed investor worries over
escalation in Sino-U.S. tensions.
    U.S. President Donald Trump has repeatedly taken aim at
China as the source of the coronavirus pandemic, and has urged
Beijing to be transparent about the origins of the outbreak that
has killed more than a quarter of a million people globally. 
    The widespread impact of the virus, which first emerged in
the Chinese city of Wuhan late last year, has intensified
tensions between the economic superpowers with Trump threatening
new tariffs on Beijing. 
    "The blame game of coronavirus pandemic outbreak had begun
and the re-escalation of China-U.S. tensions is likely to keep
the RMB on the back foot in the near term," Ken Cheung, chief
Asian FX strategist at Mizuho Bank, said in a note.
    The onshore yuan opened at 7.1036 per dollar, the
weakest level since April 2, and was changing hands at 7.0897 at
midday, 268 pips weaker than the previous late session close.
    Several currency traders said the yuan was catching up with
the declines in the offshore market during the long holiday.
Some corporates also locked in profits on long dollar positions,
limiting the losses in the yuan, they said.
    "The U.S. side has not officially declared (the tariff). But
it will certainly bring shock to the currency market if it
does," said a trader at a Chinese bank.
    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 7.069 per dollar, 119 pips
or 0.17% weaker than the previous fix of 7.0571. 
    Some traders and analysts said the central bank kept the
midpoint fixing neutral on Wednesday and avoided strong use of
its counter-cyclical factor to deter depreciation expectations
in the Chinese currency.
    "It is not about to weaponize the yuan anytime soon and on
the surface appears committed to honoring the trade deal
commitments," Stephen Innes, chief global markets strategist at
AxiCorp, said in a note.
    The world's two largest economies reached a phase 1 trade
deal in January, where Beijing pledged to refrain from
competitive currency devaluations and to not target its exchange
rate to gain a trade advantage.
    Markets are also watching out for China's high frequency
data releases next week, including April inflation data, trade
data and credit lending to gauge how the broad economy has
performed after it suffered a shattering blow from the
coronavirus lockdown over recent months.
    The global dollar index rose to 99.813 at midday from
the previous close of 99.792. 
    The offshore yuan was trading at 7.105 per dollar
as of midday. 
    
    The yuan market at 0403 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      7.069    7.0571    -0.17%
                                       
 Spot yuan          7.0897   7.0629    -0.38%
                                       
 Divergence from    0.29%              
 midpoint*                             
 Spot change YTD                       -1.78%
 Spot change since 2005                16.74%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         93.18       92.92     0.3
 Reuters/HKEX                          
 CNH index                             
 Dollar index    99.813      99.792    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% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    7.105     -0.22%
        *                        
 Offshore              7.1745    -1.47%
 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 Winni Zhou and Andrew Galbraith
Editing by Shri Navaratnam)
  
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