August 1, 2018 / 1:47 AM / 8 months ago

Yuan strengthens, then eases as headlines on U.S.-China trade dispute weighed

SHANGHAI (Reuters) - China’s yuan initially rose on Wednesday, then eased after traders bought cheaper dollars and tried to weigh the possible impact of media reports saying Washington plans to raise tariffs on $200 billion of imported Chinese goods.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

A Bloomberg report on Tuesday night said the United States and China were seeking to resume trade talks to defuse their battle over import tariffs.

Later media reports said that the U.S. plans tariffs of 25 percent, instead of 10 percent, on $200 billion in Chinese imports. A source told Reuters that an announcement on Washington’s tariff plans for China could come as early as Wednesday.

Prior to market opening, the People’s Bank of China lowered the daily yuan midpoint to 6.8293 per dollar, 128 pips or 0.19 percent weaker than the previous fix of 6.8165.

Wednesday’s fixing, the lowest since May 31, 2017, largely matched market forecasts, traders said.

In the spot market, the onshore yuan opened at 6.8220 per dollar and strengthened to as high as 6.7863.

Some traders said dollar-buying interest emerged quickly after the yuan rose past 6.8 per dollar level, and such demand erased the gains in the yuan.

The Chinese currency fell back to 6.8202 at midday, 21 pips weaker than the previous late session close.

Frances Cheung, head of Asia macro strategy at Westpac in Singapore, said the market “chose to shrug off headlines on trade tensions as how the situation will evolve remains fluid. Market may have digested earlier China easing news, and shifted focus to the potential impact from pro-growth policy.”

The pro-growth policy referred to China’s fulfillment of its annual economic growth target, while it pledged to maintain a proactive fiscal policy and a prudent monetary policy to ensure ample liquidly, the official Xinhua news agency reported late Tuesday, citing a Politburo statement.

Ji Tianhe, China rates and FX strategist at BNP Paribas, said many market participants were “of two minds” during the current round of yuan depreciation.

The biggest risks in the market involve the economic situations in both China and the United States, and any signs of Sino-U.S. tension intensifying, he said.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.23, firmer than the previous day’s 92.92.

The global dollar index rose to 94.62 from the previous close of 94.493.

The offshore yuan was trading 0.18 percent weaker than the onshore spot at 6.8325 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.8647, 0.52 percent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

Reporting by Winni Zhou and Andrew Galbraith; Editing by Richard Borsuk

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