China weakens currency before US trade talks


Thu, May 03, 2018 - Page 10

China weakened its daily currency fixing by more than traders and analysts had expected before high-ranking US officials arrive in the country to discuss trade issues.

The People’s Bank of China cut the reference level to 6.3670 per US dollar, weaker than the average estimate of 6.3610 in Bloomberg survey of 21 traders and analysts.

The deviation is the biggest since Feb. 7 and continues a pattern set last month when the fixing was weaker than expected on all but one day, according to Bloomberg calculations.

“The move in the fixing today is aggressive,” said Ken Cheung (張建泰), a currency strategist at Mizuho Bank Ltd in Hong Kong.

“China may want to weaken the yuan pre-emptively before the trade talks with the US, so that they have room to strengthen the currency” if needed, Cheung said.

Policymakers might be keen to arrest the yuan’s advance against a basket of peers, he added.

A delegation led by US Secretary of the Treasury Steven Mnuchin will be in China to discuss economic and trade matters with Chinese Vice Premier Liu He (劉鶴) today and tomorrow, according to state-run China Central Television.

White House advisers Larry Kudlow and Peter Navarro, and US Secretary of Commerce Wilbur Ross will also be in Beijing in a bid to narrow the US trade deficit.

On Tuesday, Ross played down the possibility of a breakthrough.

The meetings are to start today and the US officials plan to head home by the weekend, though the trip could be cut short “if it’s not satisfactory,” he said in an interview with CNBC.

“You never know where you are until you actually get into the conference room” and an outcome cannot be prejudged, Ross said. “I wouldn’t be going all the way over there if I didn’t think there was some hope.”

US President Donald Trump will have the final say on accepting any US agreement with China, Ross said, indicating that he does not expect an announcement immediately from the meetings.

The People’s Bank of China is likely to continue to weaken the fixing amid strength in the US dollar as it seeks to keep the trade-weighted index stable, said Adarsh Sinha, Hong Kong-based cohead of Asia currency and rates strategy at Bank of America Merrill Lynch.

Investors will turn more bearish on the yuan under the central bank’s guidance and push the currency to as low as 6.5 per US dollar in the coming two to three months, he said.