Yuan extends losses, market awaits China reaction to Trump's tariff threats

China's yuan weakened further against the dollar on Tuesday as investors waited to see how Beijing would respond to fresh tariffs threats from US President Donald Trump, which have thrown trade talks between the two sides into doubt.

Markets are watching closely to see if China will still send top negotiator Vice Premier Liu He to Washington this week for further discussions, after Trump unexpectedly announced he will hike US tariffs on Chinese goods from Friday and impose new levies soon.

If Liu is part of the delegation, it could signal that "China will make concessions," said Larry Hu, chief China economist at Macquarie in Hong Kong.


"If China only sends a junior team to the US, the market might have to wait longer to see who blinks first," Hu said.
Liu is expected to be in Washington on Thursday and Friday.

Chinese investors, caught off guard by Trump's threats, dumped stocks and sold the yuan on Monday, pushing the currency to a 3-1/2 month low at one point. But markets were somewhat less jittery on Tuesday, amid expectations that Beijing would announce fresh economic support measures if the trade war escalates.

Prior to the market opening on Tuesday, the People's Bank of China (PBOC) lowered its official yuan midpoint to a fresh 2-1/2-month low at 6.7614 per dollar, 270 pips, or 0.4 per cent, weaker than the previous fix of 6.7344.
Tuesday's official fixing was the softest since Feb. 19, and the move was the biggest one-day weakening in per centage terms since Feb. 11.

But the guidance rate unexpectedly came in much lower than market expectations. The midpoint was 97 pips weaker than Reuters' estimate of 6.7517.

In the spot market, onshore yuan opened at 6.7750 per dollar and was changing hands at 6.7786 at midday, 164 pips weaker than the previous late session close and 0.25 per cent softer than the midpoint.