China’s yuan hovers near 2-week low, tariffs, parliament gathering in focus

SHANGHAI: China’s yuan hovered near a two-week low against the dollar on Monday as upbeat manufacturing data partially offset some investor worries over heightened Sino-US trade tensions after President Donald Trump proposed extra tariffs on Chinese goods.

Trump’s additional 10% tariffs on Chinese goods will come into effect on March 4, while China is studying relevant countermeasures, state-backed Global Times said on Monday.

Trade tensions had been one of the key drags on the yuan during Trump’s first term as the president, when a series of tit-for-tat US-China tariff announcements drove the Chinese currency down more than 12% against the dollar between March 2018 and May 2020.

However, market sentiment in morning deals was slightly improved as China’s manufacturing activity expanded at the fastest pace in three months in February, an official factory survey showed.

As of 0351 GMT, the onshore yuan weakened 0.11% to 7.2881 per dollar, compared with a two-week low of 7.2914 hit on Friday.

Its offshore counterpart traded at 7.2965 per dollar around midday Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1745 per dollar, its weakest level since January 20 but 1,112 pips firmer than a Reuters’ estimate of 7.2857.

The central bank has set its official guidance on the firmer side of market projections since mid-November, which analysts and traders see as a sign of unease over the yuan’s decline.

“The Chinese authorities continue to keep the yuan fixings steady, and we expect them to continue to do so during the week when the ‘Two Sessions’ are held,” analysts at ANZ said in a note.

Yuan slips on renewed investor worries about Sino-US trade relations

“After that, markets will be closely watching the fixings to see if the PBOC starts to guide the yuan weaker.”

They referred to the annual gathering of China’s parliament starting on March 5, when Beijing is expected to unveil key economic goals and its policy agenda for this year.

“Notably, this new tariff’s effective date coincides with the opening of China’s ‘Two Sessions’, adding to anticipation around Beijing’s policy responses to support growth,” said Tommy Xie, head of Asia macro research at OCBC Bank.