China's yuan recovers from 3-month low on export data and state bank support
Updates with levels as of 0400 GMT, adds table
SHANGHAI, Nov 7 (Reuters) -China's yuan recovered from a three-month low to inch higher against the dollar on Thursday, as encouraging export data and state bank support outweighed worries about higher U.S. tariffs on Chinese goods after Donald Trump's presidential election win.
China's outbound shipments grew at the fastest pace in over two years in October as manufacturers rushed inventory to major export markets in anticipation of further U.S. and European Union tariffs, with the threat of a broader trade war looming.
"I think this may partly be driven by exporters trying to front load shipments in order to mitigate the damage of a potential trade war next year," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
"We cannot rely on exports to carry China's economy. I expect fiscal policy will become more proactive next year as a pillar for growth."
As of 0400 GMT, the onshore yuan CNY=CFXS was 0.09% higher at 7.1730 to the dollar, reversing earlier loss by hitting a trough of 7.1950 per dollar, the weakest since Aug. 15.
Its offshore counterpart CNH=D3 traded at 7.188 yuan per dollar around midday.
Trump has said he will impose tariffs of 60% or more on goods from China to boost U.S. manufacturing and will cut taxes. Both policies are seen as inflationary and likely to keep U.S. interest rates high and undermine currencies of trading partners.
During Trump's first presidency, the yuan weakened about 5% against the dollar during the initial round of U.S. tariffs on Chinese goods in 2018, and fell another 1.5% a year later when trade tensions escalated.
"We don't think China policymakers would react to generalised pre-election candidate talk about tariffs before they actually materialize," Citi analysts said in a note.
"Under a potential 60% tariff, if the yuan exchange rate follows the path in the last round, it could go to 7.7-8.0. The People's Bank of China (PBOC) may eventually allow the yuan exchange rate to adjust in this case, but still manage the timing and the pace."
They also expect the central bank to defend the currency at an early juncture to anchor market expectations and show Beijing will take active steps to manage bilateral trade imbalances.
China's major state-owned banks were selling dollars to prevent the yuan from weakening too fast on Wednesday and Thursday, sources told Reuters.
Prior to the market opening, the PBOC set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1659 per dollar, its weakest since Nov. 17, 2023, and 20 pips firmer than a Reuters' estimate CNY=RTRS of 7.1679.
"Today's PBOC fixing doesn't suggest that authorities are overly concerned on FX yet given the historical fixings during bouts of USD strength," said Alex Loo, macro strategist at TD Securities.
He referred to the central bank's persistently firmer-than-expected midpoint seen late last year and early this year to stabilise the yuan.
"As the National People's Congress (NPC) is still ongoing, we expect PBOC to cap any abrupt move higher in USD/CNY through state banks' USD selling in the interim," Loo added.
Sources told Reuters last week that Beijing may announce a stronger fiscal package if Trump wins a second presidency as his return to the White House is expected intensify the economic headwinds for China.
LEVELS AT 0400 GMT
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan CNY=CFXS | 7.173 | 0.09 | -0.99 | 7.1723 | 7.195 |
Offshore yuan spot CNH=D3 | 7.1881 | 0.23 | -0.87 | 7.1878 | 7.2133 |
Reporting by Shanghai Newsroom; Editing by Christian Schmollinger and Michael Perry
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