July 23, 2020 / 4:41 AM / 18 days ago

Yuan hovers near 1-week low as Sino-U.S. tensions flare

    SHANGHAI, July 23 (Reuters) - The yuan hovered around
one-week lows against the dollar on Thursday after a dramatic
escalation in tensions between Washington and Beijing.
    The United States on Wednesday gave China 72 hours to close
its consulate in Houston amid accusations of spying, and
President Donald Trump said it was "always possible" other
Chinese missions could be ordered to close as well.]
    China vowed to retaliate after the Washington's decision.
    "Given the way these things operate, we would be very
surprised if we did not see tit-for-tat reprisals," Robert
Carnell, regional head of research for Asia Pacific at ING, said
in a note to clients.
    A person with direct knowledge of the matter told Reuters on
Wednesday that China was considering ordering the closure of the
U.S. consulate in the central city of Wuhan.
    The onshore yuan opened at 7.0088 per dollar and
fell to a low of 7.0148 before changing hands at 7.0054 at
midday, 65 pips weaker than the previous late session close.
    Spot yuan had sunk to a one-week low of 7.0169 on Wednesday
after news of the consulate closure.
    Traders said risk-averse sentiment was heavy and kept the
yuan on the weaker side of the key 7 per dollar level on
Thursday morning. One trader at a Chinese bank said markets were
still assessing the news and investors were waiting to see what
action Beijing and Washington would take.
    Prior to the market opening, the People's Bank of China
(PBOC) weakened the midpoint rate by most in nearly a month to
6.9921 per dollar, 203 pips, or 0.3%, weaker than the previous
fix of 6.9718.
    Thursday's official guidance rate also came in much weaker
than market projections. It was also 84 pips softer than
Reuters' forecast of 6.9837.
    With attention focused on the latest Sino-U.S. flare-up,
traders said there was little immediate reaction to a Reuters
story that China's central bank is dialing down policy easing
amid growing signs that activity is rebounding from the
coronavirus crisis.
    Policy sources said the PBOC does not see an immediate need
to ease monetary policy further, but will keep conditions
accommodative to support a recovery in the world's
second-largest economy.
    Policymakers are also keen to save their ammunition amid
uncertainty over how long it will take the global economy to
recover and rising Sino-U.S. tensions, the sources said.
    The global dollar index fell to 94.925 at midday from
the previous close of 95.012. 
    The offshore yuan was trading at 7.0074 per dollar
as of midday. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9921   6.9718    -0.29%
                                       
 Spot yuan          7.0054   6.9989    -0.09%
                                       
 Divergence from    0.19%              
 midpoint*                             
 Spot change YTD                       -0.60%
 Spot change since 2005                18.14%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.87       92.05     -0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    94.925      95.012    -0.1
 
    
    
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    7.0074    -0.03%
        *                        
 Offshore              7.1446    -2.13%
 non-deliverable                 
 forwards                        
               **                
 
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
. 

 (Reporting by Winni Zhou and Andrew Galbraith; Editing by Kim
Coghill)
  
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