MNI CHINA MONEY WEEK: Yuan Hell Of A Week For China FX Market

     LONDON (MNI) - The Yuan has been the go-to barometer for global sentiment

this week, unsurprisingly after the U.S. administration labelled China a

currency manipulator late Monday, the first time that it has been so accused

since the Clinton administration.

     The latest twists in the ongoing trade war came after President Donald

Trump announced at the weekend - via Twitter -- the U.S would add a 10% tariff

on a further $300 billion of China's exports, reaction to officials returning

from Shanghai talks with no advance in the situation.

     Monday morning trade saw the yuan trade lower, with dollar-yuan breaking

above the key 7 level after the People's Bank of China let its fixing levels

gradually edge higher.

     The yuan's move lower was the straw that broke the camel's back for the

U.S. Treasury, coming out and labelling China a currency manipulator, at least

on less stringent readings, as China doesn't meet all 3 benchmarks under the

more rigorous 2015 U.S. Trade Facilitation and Trade Enforcement Act.

     --CHINA RESPONSE

     Unsurprisingly, Chinese policymakers defended the yuan's move post-Trump,

pointing to a need to manage the currency in a stable manner. China's FX

regulator suggested there were no ground for labelling China a currency

manipulator and the move does not strike an accord with the facts.

     The yuan continued to hover above 7 against the dollar, and Thursday saw

the PBOC fix above 7 for the first time since 2008, with strong evidence the

central bank deployed the counter-cyclical adjustment factor, in an attempt to

shore up confidence regarding its management ability.

     Having hit an intra-week high of 7.14 on Tuesday, the pair was trading at

7.0815. The offshore/onshore yuan basis traded at the widest levels since the

capital flight drama of early 2016 earlier this week, but has also since

retraced some of the losses.

     --WHERE DOES IT STOP?

     Analysts have earmarked levels between CNY7.30 and CNY7.40 as the point

where currency depreciation would negate the effects of the latest round of

tariffs. There are no signals yet suggesting the currency will trade that low in

the near term, but much could depend on how the White House reacts in coming

days.

     Further talks are planned between U.S. and Chinese officials in September,

but Beijing appears to have accepted the 10% tariffs will be imposed on Sept 1

and they could be increased to 25% as China stands firm on its positions.

     --DATA

     Data in the coming week could give a further look at how the trade dispute

is impacting the Chinse economy.

     July's China trade data showed positive exports growth on a y/y basis,

although many have pointed to the usual caveat of frontloading. ING went further

than that, singling out some "questionable" exports in the details of the

release.

     Chinese factory gate prices (PPI) moved into deflationary territory for the

first time since August 2016, falling by 0.3% in Y/Y terms during the month of

July.

     Looking ahead, money supply and bank lending data, industrial production,

retail sales and the surveyed unemployment rate provide the highlights between

now and next Friday.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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