China sets its yuan midpoint at 7.0136 per dollar, setting it weaker than 7 for the second time this week - CNBC

August 09, 2019

China's central bank on Friday set the official midpoint reference for the yuan at 7.0136 per dollar.

That followed Thursday's rate of at 7.0039 yuan per dollar — the weakest level since April 21, 2008. Analysts were expecting the People's Bank of China to set the midpoint at 7.0222 at per dollar on Friday.

Investors have been monitoring the onshore exchange rate closely this week after the yuan weakened past a psychologically important level of 7 per dollar on Monday for the first time since the global financial crisis in 2008. That in turn prompted the U.S. Treasury Department to designate China as a currency manipulator, a move no White House had exercised since the Clinton administration.

The PBOC allows the local currency to fluctuate against the greenback within a narrow band of 2% from each day's midpoint. This is known as the on-shore yuan whereas the less restrictive exchange rate used outside mainland China is known as the offshore yuan.

The on-shore yuan last traded at 7.0440 on Thursday. Meanwhile, the offshore yuan traded at 7.0816 on Friday at 9:00 a.m. HK/SIN.

For its part, the Chinese central bank denied it's devaluing the currency to counter American tariffs.


Monday's move could be a start of additional weakening of the yuan, Citi analysts wrote in a recent note.

The yuan has weakened in recent months against the dollar as the trade war between Beijing and Washington intensified. Last week, U.S. President Donald Trump unexpectedly announced 10% tariffs on another $300 billion of Chinese goods starting Sept. 1 even after the two countries restarted trade talks in Shanghai.

Year-to-date, the onshore currency pair is down about 2.5%.

A weaker yuan makes Chinese exports more attractive in international markets, and the Trump administration has frequently complained it's giving Beijing a trade advantage.

But, that could provide "significant headwinds for Chin's commodity imports in coming months," Vivek Dhar, senior analyst for mining and energy commodities research at the Commonwealth Bank of Australia, wrote in a Friday note. Some of those important commodities include iron ore, coal and gas.

Still, Beijing wants to keep the currency stable to avoid the uncertainties brought about by large depreciation, analysts have said.

KEY POINTS

  • China's central bank on Friday set the official midpoint reference for the yuan at 7.0136 per dollar.
  • The Peopl's Bank of China allows the local currency to fluctuate against the greenback within a narrow band of 2% from each day's midpoint.
  • Investors have been monitoring the onshore exchange rate closely after the yuan weakened past a psychologically important level of 7 per dollar on Monday for the first time since the global financial crisis in 2008.


GP: People's Bank of China PBOC 190605 Pedestrians walk past the People's Bank of China headquarters in Beijing, China, on Monday, Jan. 7, 2019. Giulia Marchi | Bloomberg | Getty Images

China's central bank on Friday set the official midpoint reference for the yuan at 7.0136 per dollar.

That followed Thursday's rate of at 7.0039 yuan per dollar — the weakest level since April 21, 2008. Analysts were expecting the People's Bank of China to set the midpoint at 7.0222 at per dollar on Friday.

Investors have been monitoring the onshore exchange rate closely this week after the yuan weakened past a psychologically important level of 7 per dollar on Monday for the first time since the global financial crisis in 2008. That in turn prompted the U.S. Treasury Department to designate China as a currency manipulator, a move no White House had exercised since the Clinton administration.

The PBOC allows the local currency to fluctuate against the greenback within a narrow band of 2% from each day's midpoint. This is known as the on-shore yuan whereas the less restrictive exchange rate used outside mainland China is known as the offshore yuan.

The on-shore yuan last traded at 7.0440 on Thursday. Meanwhile, the offshore yuan traded at 7.0816 on Friday at 9:00 a.m. HK/SIN.

For its part, the Chinese central bank denied it's devaluing the currency to counter American tariffs.


Monday's move could be a start of additional weakening of the yuan, Citi analysts wrote in a recent note.

"It is likely that further depreciation actions could be in the pipeline should the trade war tensions escalate," the analysts said. "For the exchange rate policy to be used effectively, we could not rule out future one-off large depreciation, either, given China has already tightened its capital controls since end 2016."

The yuan has weakened in recent months against the dollar as the trade war between Beijing and Washington intensified. Last week, U.S. President Donald Trump unexpectedly announced 10% tariffs on another $300 billion of Chinese goods starting Sept. 1 even after the two countries restarted trade talks in Shanghai.

Year-to-date, the onshore currency pair is down about 2.5%.

A weaker yuan makes Chinese exports more attractive in international markets, and the Trump administration has frequently complained it's giving Beijing a trade advantage.

But, that could provide "significant headwinds for China's commodity imports in coming months," Vivek Dhar, senior analyst for mining and energy commodities research at the Commonwealth Bank of Australia, wrote in a Friday note. Some of those important commodities include iron ore, coal and gas.

Still, Beijing wants to keep the currency stable to avoid the uncertainties brought about by large depreciation, analysts have said.

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Steven Rich
Sep 17, 2018:
Well done
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