August 30, 2019 / 5:32 AM / 21 days ago

Yuan weakens, on track for biggest monthly decline since 1994

 (Adds details, comments and background)
    SHANGHAI, Aug 30 (Reuters) - The yuan resumed its decline
against the dollar on Friday and was on track for its worst
month since China's currency reform in 1994, due to trade
tensions with the United States and a slowdown in the domestic
economy.
    In August, the yuan has lost more than 3.7% versus the
dollar.
    On Thursday, spot yuan snapped a 10-day losing
streak, the longest since December 2015, as Beijing and
Washington gave signs they discussed a coming round of
face-to-face negotiations in September, raising hopes to end the
costly trade war.
    But early Friday, onshore yuan slipped after opening at
7.1495 per dollar and was changing hands at 7.1511 at midday, 81
pips weaker than the Thursday late session close.
    The People's Bank of China set Friday's official yuan
midpoint at its weakest in 11-1/2 years, though for a
fourth straight day it was much stronger than the market
expected, signaling the central bank's intention to slow the
currency's decline.
    The PBOC set the midpoint at 7.0879 per dollar, 21 pips
weaker than Thursday's fix of 7.0858 and the weakest since March
14, 2008.
    Friday's official guidance rate was 318 pips or 0.45%
stronger than Reuters' estimate of 7.1237 per dollar.
    At the start of August, U.S. President Donald Trump
threatened to slap fresh tariffs on Chinese goods. Days later,
China let its currency slide past the key 7 per dollar level for
the first time since the global financial crisis, and Washington
labelled it a currency manipulator. 
    Analysts and traders believe that during August, the central
bank heavily used its counter-cyclical factor, a tool introduced
to the midpoint fixing mechanism in May 2017, to reduce price
swings.
    Traders said corporate demand for dollars remained heavy on
Friday morning, dragging spot yuan lower. 
    "If there are no more new tariffs, the spot yuan is likely
to consolidate at current levels," said a chief trader at a
Chinese bank in Shanghai, adding that it could strengthen if
implementation of U.S. tariffs is delayed.
    Becky Liu, head of China macro strategy at Standard
Chartered Bank in Hong Kong, said in a note she expects Chinese
authorities "to avoid heavy-handed intervention to maintain
USD-CNY at or under any specific level." 
    "The authorities will likely allow further depreciation in
an orderly manner, while continuing to curb excessive sudden
movements," she added, revising her year-end forecast for the
yuan to 7.23 per dollar from 6.86 in July. 
    As of midday, the offshore yuan was trading at
7.1555 per dollar.
    
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      7.0879   7.0858    -0.03%
                                       
 Spot yuan          7.1511   7.143     -0.11%
                                       
 Divergence from    0.89%              
 midpoint*                             
 Spot change YTD                       -3.89%
 Spot change since 2005                15.74%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.13       91.02     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    98.541      98.507    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    7.1555    -0.06%
        *                        
 Offshore              7.2178    -1.80%
 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 John Ruwitch; Editing by Simon
Cameron-Moore and Richard Borsuk)
  
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