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Yuan softens on trade threats, focus turns to parliamentary meeting

The Senate passed a bill that could de-list Chinese companies on U.S. exchanges, and regulators have paved the way to tighten the global chip sales curb to Huawei Technologies

twitter-logo Reuters        Last Updated: May 21, 2020  | 20:31 IST
Yuan softens on trade threats, focus turns to parliamentary meeting

The yuan eased on Thursday as heightened Sino-U.S. tensions showed no signs of abating, but expectations of China maintaining exchange rate stability during its annual parliamentary meeting kept the downward pressure in check.

The onshore yuan weakened 0.17% to 7.1054 per dollar at midday, while the offshore yuan fell 0.14% to 7.1160 per dollar. The dollar index climbed 0.17% to rose to 99.345 from the previous close.    

Relations between Washington and Beijing have turned sour in recent weeks over the corornavirus pandemic and the squabble is threatening to fire up trade tensions once again.

U.S. Secretary of State Mike Pompeo called the $2 billion Beijing pledged to fight the virus "paltry" compared to the cost on the world from the spread of the COVID-19 illness. The Senate passed a bill that could de-list Chinese companies on U.S. exchanges, and regulators have paved the way to tighten the global chip sales curb to Huawei Technologies.

Offsetting the negative headlines was the National People's Congress (NPC), set to start on Friday, where Premier Li Keqiang is expected to make a state-of-the-nation style address and reiterate Beijing's long standing vow to keep the yuan stable.

China is expected to unveil stimulus measures to spur its economy battered by the novel coronavirus, as it grapples with problems from surging unemployment to worsening U.S. ties.

"The NPC is a temporary stabiliser for the yuan and Chinese financial markets," said Christy Tan, head of markets strategy for Asia at National Australia Bank. "But you're looking at tensions potentially developing into another round of trade war...which makes for volatile yuan and markets after the NPC."

Analysts will also be watching the NPC session for clues on the health of the economy, and if there will be an annual growth target after GDP contracted in the first quarter for the first time in decades.

Li is expected to announce a growth target substantially lower than the around 6% originally set.

The People's Bank of China set the midpoint rate at 7.0868 per dollar prior to market open, firmer than the Reuters estimate of 7.0924.

Two traders in Shanghai said with the meeting soon in session, and the safe haven U.S. dollar supported by deteriorating risk appetite near its current level, the yuan will also stay steady near its current range.

"Trump can rail at the moon and stars when it comes to China," Cliff Tan, East Asian head of global markets research at MUFG Bank, wrote in a note on Thursday.

"But unless he is prepared to do something concrete (like abandon the trade deal or fire on Chinese missiles from the Taiwan Strait) in the final months of his first term, it may not have a lasting effect on the currency."

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 92.82, weaker than the previous day's 92.83.

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