Offshore yuan pulls off all-time lows after Beijing steps in to curb falls

The offshore yuan pulled back from an all-time low on Tuesday after Beijing appeared to take steps to prevent the currency from weakening further, following a sharp drop that prompted the US government to declare China was manipulating its currency.

China said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency.

On top of that, the People's Bank of China fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate through which it broke on Monday.

These moves have led analysts to think that Chinese authorities may not be ready yet to let the yuan weaken much further.

“The recovery in yuan...is triggered by the fixing, which has eased some concern about competitive currency devaluation,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The offshore yuan was last up by 0.4 per cent at 7.0677 against the dollar after plunging to 7.14 on Monday night, the lowest since offshore trading began in 2010.

The onshore yuan opened trade at 7.0699 per dollar, versus its last close at 7.0498.

If the Chinese central bank fixes the rate at or above 7, this will likely be an “indication they are ready for the renminbi weakening phase,” said Stephen Gallo, forex strategist at BMO Capital Markets.

The small rebound in the Chinese renminbi has shifted investors' focus away from safe-haven currencies, pushing the Japanese yen and Swiss franc lower.

The yen was last down by 0.6 per cent at 106.56, pulling back from a 16-month high of 105.52 it reached overnight, excluding the January flash crash. The franc was 0.2 per cent weaker, bouncing off a 25-month high it reached on Monday.

On Monday, China let its currency break through a key support level to an 11-year low in a sign that Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs.

And on Tuesday, China's official Communist Party newspaper said the US was “deliberately destroying international order”, a day after Washington branded Beijing a currency manipulator in a rapidly escalating trade dispute.

The escalation in the US-China trade war began last week when US President Donald Trump unexpectedly said he would impose 10 per cent tariffs on $300-billion of Chinese imports from September 1, essentially imposing a levy on all Chinese goods coming into the US. Since then, the offshore yuan has lost 3.4 per cent of its value against the greenback.

Elsewhere, the euro was flat at $1.1208, after jumping to an 18-day high against the dollar overnight. The index, which tracks the dollar against a basket of six major currencies, was also flat at 97.57.

The pound was up 0.3 per cent at $1.2176, not far from the 31-month low it reached last week. Against the euro, sterling hit a new 23-month low on Tuesday of 92.49, but was last up by 0.2 per cent at 92.04 pence.

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