SHANGHAI: The yuan dipped from a four-month high against the dollar on Thursday, underperforming a broader lift in global peers as persistent worries about even more US tariffs against China overshadowed the reprieve granted to Canada and Mexico.
News that the US would give automakers from its North American neighbours some tariff relief and the euro’s unexpected strength pushed the greenback sharply lower against most currencies overnight.
While the onshore yuan firmed to a high of 7.2199 against the dollar on Wednesday, it pulled back on Thursday.
Market participants said the overall sentiment for the yuan remains subdued, despite the overnight gains.
Ken Cheung, FX strategy director at Mizuho, expects the impact from the dollar’s decline on the yuan to be limited.
“The dramatically stable CNY following the rounds of 10% US tariff hikes might catch market participants off guard,” said Cheung.
“Trump’s tariff uncertainties are unlikely to dissipate before the start of China-US trade talks, leaving the CNH and CNY spot above the 7.2 handle,” Cheung said.
The spot yuan opened at 7.2350 per dollar and was last trading 100 pips lower than the previous late session close at 7.2445 as of 0330 GMT and 1.05% weaker than the central bank’s guidance.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1692 per dollar, 694 pips firmer than a Reuters’ estimate.
Beijing began its week-long annual parliamentary meeting of the National People’s Congress (NPC) on Wednesday by signalling greater efforts to boost consumption to help protect economic growth.
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Investors now await a press conference from policymakers later in the day, where China’s top finance and markets officials, including PBOC governor Pan Gongsheng, will speak.
“While the risk of US reflation may slow or even halt the Federal Reserve’s rate cuts, the implementation of a domestic policy package, improvement in economic momentum, and sustained high trade surplus are expected to support the yuan,” said economists Yao Shaohua and Wang Honglin at ABC International in a report.
The offshore yuan traded at 7.245 yuan per dollar, down about 0.12% in Asian trade.
The dollar’s six-currency index was 0.010% higher at 104.3.
American Dollar Exchange Rate