Yuan steady as China-US trade extension gives economy more breathing room

Business Recorder

a day ago

SHANGHAI/HONG KONG: China's yuan held steady against the dollar on Tuesday after Washington and Beijing extended a tariff truce for another 90 days, a move largely in line with investors' expectations.
Chinese markets have now shifted their attention to US inflation data later in the day for further clues on dollar's outlook.
Trade relations between the world's two largest economies have been a key factor influencing the yuan, but investors widely viewed a truce extension as the base-case scenario following a meeting of the two sides in Stockholm last month and signs of easing tensions, traders and analysts said.
'As expected, the U.S. and China confirmed a 90-day extension of their trade truce, after several rounds of 'productive' negotiations,' Lynn Song, chief economist for Greater China at ING, said in a note.
'This keeps tariffs steady until November. Yet after the wave of August tariff hikes (on other countries), the relative handicap for Chinese exporters has narrowed somewhat.'
After escalating tit-for-tariffs threatened a Sino-US trade freeze earlier this year, China's exports have been unexpectedly resilient as manufacturers made the most of the fragile tariff truce between Beijing and Washington to ship goods, boosting the uneven economy.
As of 0352 GMT, the onshore yuan was 0.01% higher at 7.1873 per dollar, while its offshore counterpart was up about 0.06% in Asian trade to 7.1917.
US consumer inflation due later in the session could offer more clues on when the Federal Reserve will lower interest rates, which could affect major currencies, including the yuan.
Markets are widely pricing in a cut in September and possibly another by year-end.
Friday's meeting between Russian President Vladimir Putin and U.S. President Donald Trump over the war in Ukraine is also on investors' radar, traders said, as any unexpected outcome could trigger volatility in global financial markets.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.1418 per dollar, its weakest since August 1 and 483 pips firmer than a Reuters' estimate of 7.1901. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
Based on Tuesday's official guidance rate, the CFETS yuan basket index, a gauge that measures the yuan's value against its peers, stood at 96.2 and was down 5.2% year-to-date. Meanwhile, the yuan strengthened about 1.6% versus the dollar.
'While the yuan has appreciated versus the dollar, it has weakened on a trade weighted basis, providing further support to Chinese exporters,' said Ben Bennett, Asia head of investment strategy at L&G Asset Management.
'External demand therefore remains a bright spot for the Chinese economy and stock markets this year,' he said, noting many Chinese exporters have also successfully realigned their manufacturing to avoid a worse-case tariff impact.
Separately, markets are also awaiting China's credit growth data this week to get a clearer picture of the health of the broader economy.
A Reuters poll showed that new bank loan issuance in China likely plunged last month from June, weighed down by weak credit demand and seasonal factors even as the central bank keeps monetary policy accommodative to support growth.