HONG KONG: China appears to be propping up the yuan just as the government prepares to restart trade negotiations with the U.S.
After falling to a one-year low, the offshore yuan -- one of the world’s weakest currencies in recent months -- on Thursday surged the most since January 2017 as cash supply dwindled and the central bank set its daily fixings at stronger than expected levels. That came as the Ministry of Commerce said it would send a delegation to the U.S. later this month, stoking hopes of a revival of talks that stalled in June.
“China and the U.S. are finally sharing common interests on the yuan: while Washington always wants a stronger currency, Beijing may think the exchange rate has fallen enough and needs to stabilize,” said Zhou Hao, a senior economist at Commerzbank AG in Singapore. “We will see intense defense if the yuan moves closer to seven per dollar.”
U.S. President Donald Trump has accused China of keeping its currency artificially weak to garner a trade advantage, saying on television channel CNBC last month that the yuan is “dropping like a rock,” to America’s detriment.
The yuan has fallen more than 8 percent versus the dollar since March as the People’s Bank of China eased monetary policy to support a slowing economy while trade friction with the U.S. worsened. But Chinese policy makers worry a disorderly drop could trigger capital outflows and threaten financial stability.
“China wouldn’t want the yuan to slide too quickly before important meetings, and that could be one of the reasons why the policy makers moved to support the currency,” said Nathan Chow, senior economist at DBS Bank Hong Kong Ltd. “The yuan will still face pressures as there are many uncertainties with the low-level trade talks. I don’t think China will bend to the U.S. that easily.” - Bloomberg
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