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Yuan falls on global easing hopes, unfazed by small cut in new China loan rate

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SHANGHAI — China’s yuan eased to a

one-week low on Tuesday, tracking broad strength in the dollar

which firmed on hopes that growth boosting measures in Germany

and China would ease the risk of a global recession.

Traders said the yuan was little moved by a small cut in

China’s new loan benchmark rate earlier in the day, though

analysts believe rate reforms have opened the door to more

policy easing in coming months to help the struggling

economy.

Simmering trade tensions with the United States remained a

key concern for markets.

Prior to the market opening, the People’s Bank of China

(PBOC) set the midpoint rate at 7.0454 per dollar,

the weakest level since Aug. 13. The guidance was 89 pips or

0.13 percent weaker than the previous fix of 7.0365.

Several traders said Tuesday’s fixing came in surprisingly

lower than their forecast. The midpoint was also 9 pips weaker

than Reuters’ estimate of 7.0445.

The PBOC had persistently set its official guidance rate

firmer than market expectations earlier this month, when it

allowed the spot rate to fall below the key 7 per dollar level

for the first time since the global financial crisis. Markets

had seen the recent fixings as an attempt to stabilize the

currency.

The weakness in the midpoint dragged the onshore market

lower. The spot rate opened at 7.0600 per dollar and

was changing hands at 7.0681 at midday, 172 pips weaker than the

previous late session close.

Traders said the weaker fixing and the rises in the

greenback weighed on the yuan, and latest news headline on

Washington granting Huawei another 90-days trade extension to

buy from U.S. suppliers had largely affected sentiment.

“The extension on the reprieve signaled a procrastination of

China-U.S. trade negotiations, rather than offering a resolution

to the trade conflicts,” said Ken Cheung, senior Asian FX

strategist at Mizuho Bank in Hong Kong.

“The China-U.S. trade war risk is set to weigh on RMB

sentiment in the near term.”

The United States will extend a reprieve that permits

China’s Huawei Technologies to buy components from U.S.

companies to supply existing customers, the Commerce Department

said on Monday, but it also moved to add more than 40 of

Huawei’s units to its economic blacklist.

The offshore yuan was trading at 7.0747 per dollar

as of midday.

The yuan market at 0433 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 7.0454 7.0365 -0.13%

Spot yuan 7.0681 7.0509 -0.24%

Divergence from 0.32%

midpoint*

Spot change YTD -2.76%

Spot change since 2005 17.10%

revaluation

Key indexes:

Item Current Previous Change

Thomson 92.06 92.25 -0.2

Reuters/HKEX

CNH index

Dollar index 98.315 98.347 0.0

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2 percent from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 7.0747 -0.09%

*

Offshore 7.1313 -1.20%

non-deliverable

forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

(Reporting by Winni Zhou and John Ruwitch; Editing by Kim

Coghill)

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