Yuan eases, set for 3rd weekly loss as PBOC tries to temper pressure

SHANGHAI: China’s yuan eased against the U.S. dollar on Friday and looked set for its third straight weekly loss, but the central bank again appeared to be curbing downward pressure by setting supportive guidance rates.
While the escalating U.S.-China trade war has put stronger pressure on the yuan, analysts believe Beijing is keen to keep the currency relatively steady ahead of a closely watched G20 meeting later this month.
U.S. President Donald Trump has said he plans to meet Chinese counterpart Xi Jinping on the sidelines of that meeting, offering investors some hope that the two sides can still avert a full-blown trade war.
Prior to the market opening on Friday, the People’s Bank of China (PBOC) set the midpoint rate at 6.8937 per dollar, 3 pips weaker than the previous fix of 6.8934.
Fixings have persistently come in stronger than market consensus in the past few weeks. On Friday, the official guidance rate was 146 pips higher than Reuters estimate of 6.9083.
“The (USD/CNY) midpoint fixings have been well capped below 6.9 per dollar level in the past month, sending a very strong stabilising policy signal to prevent the yuan falling too much”, said one trader at a Chinese bank. But the trader added some corporate flows were testing lows in the yuan in the morning session.
Weighed down by corporate demand for the greenback, the onshore yuan opened at 6.9220 per dollar and eased to 6.9239 at midday, 27 pips weaker than the previous late session close.
If the onshore spot yuan finishes the late night session at the midday level, it would have lost 0.2 percent to the dollar for the week, its sixth losing week in seven since early May, when the United States and China escalated their tit-for-tat trade war.
Several traders said many companies which have seasonal FX demand and financing needs have to make the payments by the end of the month and cannot hold off on their dollar purchases for too long.
Many Chinese companies listed overseas have to make their interim dividend payments starting in June. Such demand should push the yuan lower.
A second trader at a Chinese bank said he saw many major state-owned banks actively buying dollars on Friday, but assumed the big banks were executing orders from their corporate clients.
Pressure on the yuan may ease if the Federal Reserve starts cutting interest rates to cushion the U.S. economy from greater trade damage. Some analysts believe that would also give more room to the PBOC to reduce its major rates without risking a sharp jump in capital outflows.
Beijing is expected to announce more stimulus soon as trade pressure mounts, as earlier support measures have been slow to kick in. China will release May industrial output data at 0700 GMT on Friday, along with investment and retail sales readings.
Former PBOC Governor Zhou Xiaochuan told a financial forum in Shanghai that trade issues could trigger competitive currency devaluation and cause chaos to global financial order.
In global markets, the dollar index against a basket of six rivals was trading at 97.066 at midday, and on track for an over 0.6 percent gain this week.

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