May 7, 2019 / 7:15 AM / 3 months ago

Yuan recoups most losses as Beijing confirms Vice Premier Liu's trip to U.S.

(Adds details, updates prices)

SHANGHAI, May 7 (Reuters) - China’s yuan recouped most of its early losses on Tuesday afternoon after Beijing confirmed its top negotiator would go to Washington as planned for the next round of trade talks, despite U.S. threats to hike tariffs within days.

China’s commerce ministry said Vice Premier Liu He will visit the United States on May 9 and May 10 for trade talks at the invitation of senior U.S. officials.

After months of negotiations and reports of progress, the talks appeared to be in danger of unraveling on Monday after U.S. President Donald Trump said he would raise existing tariffs on Chinese goods on Friday and impose fresh levies soon.

If Liu joins the delegation flying the U.S., “it will signal how serious China is and indicates that China and the U.S. are going to talk further,” economists at ING said in a note earlier in the day.

The yuan bounced in onshore trade following the Liu news to as high of 6.7628 per dollar at one point, trimming the intraday loss to 6 pips from the previous late night close of 6.7622. It opened at 6.7750 per dollar on Tuesday morning and trading at 6.7660 as of 0709 GMT.

Liu’s presence could signal that “China will make concessions,” said Larry Hu, chief China economist at Macquarie in Hong Kong.

“If China only sends a junior team to the U.S., the market might have to wait longer to see who blinks first,” Hu said.

Chinese investors, caught off guard by Trump’s threats, dumped stocks and sold the yuan on Monday, pushing the currency to a 3-1/2 month low at one point. Many global investors had thought that a trade deal was getting close.

But markets were somewhat less jittery on Tuesday, amid expectations that Beijing would announce fresh measures to support the economy if the trade war escalates.

Prior to the market opening, the People’s Bank of China (PBOC) lowered its official yuan midpoint to a fresh 2-1/2-month low at 6.7614 per dollar, 270 pips, or 0.4 percent, weaker than the previous fix of 6.7344.

Tuesday’s official fixing was the softest since Feb. 19, and the move was the biggest one-day weakening in percentage terms since Feb. 11.

But the guidance rate unexpectedly came in much lower than market expectations. The midpoint was 97 pips weaker than Reuters’ estimate of 6.7517.

“The RMB is likely to have more near-term downside risk with the fading of political goodwill on the currency around the trade negotiation,” Anthony Chan, chief Asia investment strategist at Union Bancaire Privée, said in a note.

China’s foreign ministry said on Monday that its team was still preparing to go to the U.S. for discussions and will work for a win-win agreement for both sides.

Stephen Innes, head of trading at SPI Asset Management, said markets have not fully priced in the tariff hikes yet.

“Yuan bulls need to be very cautious given the U.S. administration might follow through on its threat to raise the tariff on $200 billion to 25 percent, which is not priced into the currency calculus as the imposition of these additional tariffs could send us veering back to 6.85,” he said in a note on Tuesday.

The offshore yuan was trading at 6.7782 per dollar as of 0709 GMT. (Reporting by Winni Zhou and Andrew Galbraith; Editing by Kim Coghill)

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