MNI EXCLUSIVE: China Yuan To Fall If No G20 Agreement: Advisor

--China Yuan Seen Testing 7 Vs Dollar If Xi-Trump Talks Fail

     BEIJING (MNI) - China's yuan will come under renewed selling pressure and

likely break above 7 against the U.S. dollar if Saturday's summit meeting

between presidents Xi Jinping and Donald Trump fails to to ease the ongoing

trade dispute, an official government advisor told MNI Tuesday.

     "If (the U.S. and China) do not show willingness for further negotiation,

or the G20 fails to accept the leading role of the WTO-dominated multilateral

framework in the global trading system, it is not impossible that the yuan would

break the 7 level against the dollar," Xu Hongcai, chief economist at the China

Centre for International Economic Exchange, a Chinese government think tank,

told MNI.

     Despite continued bearish market sentiment, China has been striving to

stabilize the yuan exchange rate in recent weeks, Xu explained, as Beijing looks

for a solution benefitting both countries.

     But that could change in the absence of progress in the trade dispute.

     "If there is no consensus, China may follow the market trend. After all, a

weak yuan benefits our exports, and China is able to stabilize domestic

financial market and prevent capital outflow," Xu said.

     The 7 level is seen as a key dollar-yuan threshold for the People's Bank of

China, which has sent clear signals that now is not the time for a break of that

level. In October, when the pair hit a high of 6.9780, China's forex reserves

slid $33.9 billion in the month, the largest monthly drop since Dec 2016,

indicating the central bank had intervened to support the currency.

     --FED HIKES

     Other events could also help push the yuan lower in coming months, Zong

Liang, chief researcher at Bank of China, told MNI.

     Along with a negative outcome from the G20, a Federal Reserve rate hike in

December, along with continued strength of the U.S. economy, could keep the yuan

under pressure well into 2019, Zong said.

     "I think there is a chance of reaching a basic agreement (at the G20) as

the U.S has not seen an ideal result from starting the trade war. For example,

its trade deficit to China is expanding and the stock market in the U.S has

fallen," Zong said, "President Trump needs to go back to the negotiating table

with China."

     The BOC economist wasn't expecting any substantial shift in position at the

meeting, but he predicted China would like to meet some requirements of the U.S,

including a further opening up of its markets.

     Any significant agreements would likely see the yuan rally against the

dollar, taking it away from 7, Zong said, noting that they could even help

narrow the trade gap.

     --WEAK MOMENTUM

     In its quarterly report, published Wednesday the BOC, China's third-largest

state-owned bank, predicted that the yuan would maintain its weak momentum into

2019 as monetary policy between China and the U.S continues to diverge, China's

economy continues to slow and the trade dispute lingers.

     Without mentioning a number, BOC said it saw yuan depreciation remaining in

a controllable range for two main reasons: the PBOC has ample tools to stabilize

the currency and the robust U.S economic performance is unsustainable.

     As of Wednesday, USDCNY remained close to recent lows, ending the China

trading session at 6.9560 compared with Tuesday's 6.9485 close.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MAQDS$,M$A$$$,M$Q$$$,MX$$$$]