A possible trade war with U.S. takes toll, more downside likely
China's yuan slumped to a near six-month low against the U.S. dollar on Tuesday, dragged down by a lower official fix as pressure intensified on the local currency from a bitter trade spat with the U.S.
Analysts say market speculation of further loosening in policy has heightened depreciation pressure on the yuan as trade tensions intensified further between the U.S. and its trade partners.
The onshore spot yuan was changing hands at 6.5519, 0.21 percent weaker than the previous late session close. The offshore yuan was on track for its ninth straight day of losses.
"The Chinese yuan is suffering a similar fate to its other counterparts in that it is falling victim to the dollar-buying momentum, although the currency will be seen as being at direct risk to more weakness if the trade war threats between the U.S. and China intensify further," said Jameel Ahmad, global head of currency strategy and market research at FXTM.
The yuan has wiped out all the gains made so far this year and is now down about 0.74 percent against the dollar. It was up as much as 4.2 percent in late March from the start of the year.
Prior to Tuesday's market opening, the People's Bank of China (PBOC), the country's central bank, lowered its official yuan midpoint for the fifth straight trading day to 6.5180 per dollar, 0.44 percent weaker than the previous fix of 6.4893.
Tuesday's official guidance rate, which largely matched market expectations, was the lowest since January 10.
"The yuan will continue to face downward pressure against the dollar this year," though the downside will be relatively more contained than in 2015, Jiang Chao, chief economist at Haitong Securities, said in a note.
Market watchers said the PBC has plenty of tools to stabilize the yuan.
While traders had expected the onshore yuan to swing in a range between 6.2 and 6.6 this year, "the PBC might start to take actions to stabilize yuan sentiment such as reactivating counter-cyclical factors in the CNY fixing" when the onshore yuan weakens past the 6.6 per dollar level, said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong.
