China's yuan hits 13-month low on weaker fixing and depreciation bets

SHANGHAI (Reuters) - China’s yuan fell to a fresh 13-month low against the dollar on Monday, weighed by a much weaker central bank fixing and expectations the Chinese currency has further to fall as U.S. trade tensions worsen.

FILE PHOTO: Chinese 100 yuan banknotes are seen in this picture illustration taken July 11, 2013. REUTERS/Jason Lee/File Photo

In addition to developments in the global trade environment, investors are focusing on the amount of liquidity policy makers have injected into the financial system.

“Together with announcements by the People’s Bank of China (PBOC) that will ease credit conditions, and a more gradual shift in the monetary stance over the last two months, this represents a significant change towards more accommodative policy,” analysts at Moody’s said in a note.

Prior to market opening, the PBOC lowered the midpoint rate to 6.8131 per dollar, largely matching market forecasts, 189 pips or 0.28 percent weaker than the previous fix of 6.7942 last Friday.

In the spot market, the onshore yuan opened at 6.8159 per dollar and eased to a low of 6.8401 before changing hands at 6.8353 at midday, 213 pips weaker than the previous late session close and 0.33 percent softer than the midpoint.

The onshore spot yuan hit its lowest intraday level since June 27, 2017.

The offshore yuan was trading 0.10 percent weaker than its onshore counterpart at 6.8422 per dollar as of midday.

Despite the recent sharp losses in the yuan, market sentiment remains relatively stable, traders said, adding there was some month-end dollar demand from their corporate clients in morning trade on Monday.

A trader at a Chinese bank in Shanghai said the next resistance for the yuan is likely to be 6.9 per dollar.

Strategists at DBS Group Research have recalibrated their forecast for the yuan to end 2018 to 6.90 per dollar, with the dollar likely to strengthen on the U.S. Federal Reserve’s monetary tightening and more trade tensions in the second half of the year.

However, the yuan’s implied future value against the dollar continued to rise in the forwards market on Monday, with one-year tenor of the dollar/yuan swap falling to -148 points at midday compared with last Friday’s close of -80 points.

Analysts and yuan traders attributed the falls in forward points to loose yuan liquidity and major state-owned banks’s swapping dollar for yuan flows.

Last week, the Chinese currency weakened 0.4 percent against the dollar, its seventh straight weekly loss. On a trade-weighted basis, it fell 0.9 percent against a basket of its trading partners’ currencies, according to official data from the China Foreign Exchange Trade System (CFETS).

The index, published on a weekly and monthly basis, stood at 92.95 on Friday, CFETS said on its website.

The dollar was little changed against its major trading partners on Monday, as market participants awaited key central bank meetings this week. [FRX/]

The global dollar index stood at 94.721 at midday, compared with the previous close of 94.675.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 92.97, weaker than the previous day’s 93.39.

Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam Holmes