Yuan Heading for Eighth Weekly Decline; Dollar Little Changed

Aug 03, 2018

The Chinese yuan continued to slide on Friday and is now down 6% against the dollar since June. The U.S. Dollar Index, which tracks the greenback against a basket of other currencies, was little changed at 94.99 ahead of the July jobs U.S. report due later in the day.

The USD/CNY pair gained 0.4% to 6.8713, as analysts believed the combination of rising Treasury yields and greenback would be a volatile mix and could cause further loss to the yuan.

“For now, markets have had good reason to be calm despite the renminbi’s slide; so far the renminbi has merely retraced its steps back to where it was in early 2017. Last year was politically important so the authorities had a particularly tight grip on capital outflows,” Freya Beamish, Pantheon Macroeconomics Ltd said. “At this stage, trade tensions are helping the renminbi to weaken, and we’ve seen capital outflows beginning modestly to re-build. If, for instance, Mr. Trump were actually to impose further tariffs, that would cause a further renminbi depreciation. If we get back to where we were at the end of 2016, then I think we’d start to see markets outside of China reacting to renminbi weakness,” she added.

Meanwhile, in a note dated Aug. 1, Deutsche Bank AG said it expects the yuan to trade at 6.95 and 7.40 against the dollar by the end of 2018 and 2019 respectively, compared with a previous forecast of 6.80 and 7.20.

The U.S. dollar received some support in the previous session from trade tensions that returned to focus this week but remained little changed on Friday, as traders await the monthly jobs report due later in the day for more cues.

According to a Reuters survey of economists, nonfarm payrolls likely rose by 190,000 jobs in July after increasing by 213,000 in June.

"A decent jobs report should prompt a straight-forward reaction by the markets, with U.S. yields rising and the dollar gaining," said Ichikawa at Sumitomo Mitsui Asset Management.

Meanwhile, the 10-year U.S. Treasury note yield rose 0.06% to 2.988%.

The USD/JPY pair dollar added 0.04% to 111.70. The dollar rose against the yen earlier this week after the Bank of Japan tweaked its monetary policy but decided to keep interest rates low.