China’s yuan weakens for 2nd day on firmer dollar, Donald Trump trade fears

The US has the biggest trade deficit with China

By: Reuters | Hong Kong | Published:November 11, 2016 10:54 am
trump, world market, US presidential election, elections 2016, election 2016 stock market, Hong kong, dollar, yuan, yuan dollar, china, US, US market, China market, US China, Business, World markets, world news File Photo: A clerk counts Chinese 100 yuan banknotes at a branch of China Construction Bank in Nantong, Jiangsu province (Source: REUTERS/China Daily)

China’s yuan weakened for a second straight day on Friday and traders braced for further depreciation amid rising uncertainty about US policies, particularly on trade with China, under President-elect Donald Trump. Trump’s surprise victory in elections this week has fueled worries in Asia’s trade-reliant economies that he may follow through on some of his protectionist rhetoric such as imposing punitive tariffs, with China seen as the most vulnerable in the region.

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The US has the biggest trade deficit with China. In addition, expectations of higher interest rates during Trump’s term have buoyed the dollar against other currencies.

“The PBOC is caught between a rock and a hard place in the face of a strong US dollar and huge waves of capital outflows,” said Stephen Innes, senior trader at OANDA. “I suspect if, or when, any global trade policies are implemented, they would be executed in a very controlled fashion to have limited impact on the global economy.

The People’s Bank of China set the midpoint rate CNY=PBOC at 6.8115 per dollar prior to the market open, weaker than the previous fix of 6.7885. The spot market CNY=CFXS opened at 6.8076 per dollar and was changing hands at 6.8118 at midday, 28 pips away from the previous late session close and 0.00 percent away from the midpoint.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.95, firmer than the previous day’s 94.7. The global dollar index .DXY fell to 98.665 from the previous close of 98.785. The offshore yuan was trading -0.27 percent away from the onshore spot at 6.83 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs)CNY1YNDFOR=, considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 7.0205, -2.98 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.