By Stanley White
TOKYO (Reuters) – The offshore yuan managed to come off an all-time low on Tuesday after Beijing appeared to take steps to prevent the currency from sliding further, following a sharp drop that prompted the U.S. government to label China a currency manipulator.
The yen slumped against major currencies as China’s response in the trade war forced speculators to give up short-term bets that risk aversion would push the Japanese currency higher.
Yet, highlighting the shakeout in asset markets after Monday’s rapid escalation in tensions pushed the U.S.-China trade war into uncharted territory, the dollar index <.DXY> against its main rivals also remained on the backfoot.
On Monday, China let the onshore yuan break through the key 7 per dollar level for the first time since the global financial crisis, sending global financial markets into a tailspin, and investors are closely watching to see how much more Beijing will allow it to fall.
China said early on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency.
It also set a daily mid-point for onshore trade that was slightly firmer than markets had expected, though it was still the weakest level since May 2008.
U.S. Treasury Secretary Steven Mnuchin said in a statement on Monday the government had determined that China is manipulating its currency and that Washington would engage with the International Monetary Fund to eliminate unfair competition from Beijing.
Yuan’s sudden drop through the 7 mark came days after President Donald Trump announced he would impose 10% tariffs on $300 billion of Chinese imports, ending a month-long trade truce.
“The recovery in yuan and the move in the yen 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.
“China is not really trying to dramatically weaken its currency. However, nothing has been resolved in the trade war.”
The offshore yuan
The onshore yuan
In volatile trading, the dollar initially fell versus the yen
The yen, which usually rises during times of economic stress and market turmoil due to Japan’s status as the world’s biggest creditor, also slumped against major crosses after the latest moves from Beijing.
The New Zealand dollar
Elsewhere, the Australian dollar
The New Zealand dollar
The Reserve Bank of New Zealand is expected to cut interest rates to a record low of 1.25% on Wednesday, but strong unemployment data suggests the economic is not as bad as some had speculated.
($1 = 7.0508 Chinese yuan renminbi)
(Reporting by Stanley White; Editing by Kim Coghill & Shri Navaratnam)