China's yuan on course for seventh weekly drop, longest losing streak since 2021
SHANGHAI, Nov 15 (Reuters) -China's yuan slipped against the dollar on Friday and looked set for the seventh straight weekly drop, the longest such losing streak since 2021, reflecting market worries of fewer Federal Reserve rate cuts and more U.S. tariffs on Chinese goods.
During Donald Trump's first presidency, the yuan weakened about 5% against the dollar in the initial round of U.S. tariffs on Chinese goods in 2018, and fell another 1.5% a year later when trade tensions escalated.
As part of his pitch to boost American manufacturing during the recent election campaign, Trump said he will impose tariffs of 60% or more on goods from China. The proposed tariffs, as well as other policies such as tax cuts, are seen as inflationary and likely to keep U.S. interest rates relatively high in a blow to currencies of trading partners.
But, losses in the yuan on Friday were limited as the central bank again set its daily yuan midpoint at levels much stronger than markets had projected, with traders and analysts interpreting it as a sign of official support to prevent the local currency from falling too fast.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1992 per dollar, 490 pips firmer than a Reuters' estimate CNY=RTRS of 7.2482.
"The PBOC's downside bias on the daily USD/CNY fix is back," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
"The USD/CNY reference rate was set with 7.34 as the upper bound of the exchange rate band, indicating that the USD/CNY 7.30-7.35 zone remains a sensitive one for the PBOC."
Market participants widely considered the official guidance as a tool to manage expectations and the central bank had set firmer-than-expected fixings late last year and early this year in an attempt to keep the currency stable.
By 0304 GMT, the onshore yuan CNY=CFXS was 0.06% lower at 7.2325 to the dollar. If it finishes the late night session at the midday level, it would have lost 0.6% to the dollar, extending its weekly losing streak to the longest since March 2021.
"The market is likely to be closely watching the Trump administration's choice of cabinet members and watching for any signal related to when and how tariffs will be implemented," said Ju Wang, head of Greater China FX & rates strategy at BNP Paribas.
"The market is shifting towards a long position on the USD, although it hasn't yet reached the same level of crowding seen in June and July. We do expect the trend to continue, which would result in further pressure globally of a stronger USD."
Currency traders said losses in the offshore yuan were also trimmed, as yuan borrowing costs rose in Hong Kong with the CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR) CNHHIBOR= rising across tenors.
The dollar/offshore yuan's tomorrow-next swap points CNHTN=, a gauge that measures yuan's funding costs via currency forwards, kept climbing this week.
Tighter yuan conditions and higher funding rates effectively discouraged investors from shorting the yuan.
The offshore yuan CNH=D3 traded at 7.241 yuan per dollar around midday.
Separately, data on Friday showed that China's factory output growth slowed in October and demand woes in the property sector showed few signs of abating, even though consumers seemed to perk up a bit more, backing calls for more stimulus to get the economy firing on all cylinders.
LEVELS AT 0304 GMT:
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan CNY=CFXS | 7.2325 | -0.06 | -1.81 | 7.2308 | 7.2423 |
Offshore yuan spot CNH=D3 | 7.2410 | 0.16 | -1.6 | 7.24 | 7.2555 |
Reporting by Shanghai Newsroom; Editing by Kim Coghill
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
