Yuan dips as markets await Trump-Xi meeting, March data

China's yuan dipped against the US dollar on Thursday, as traders awaited the first meeting between President Xi Jinping and US President Donald Trump, with China's trade surplus and currency policy expected to be high on the agenda.

Regardless of the outcome of the meeting, some traders expect the yuan to be relatively stable against the greenback in the near future, as the dollar appears to have lost its upward momentum.

China's improving economy and stringent capital controls also have greatly reduced depreciation pressure on the yuan.

The People's Bank of China set the midpoint rate at 6.893 per dollar prior to the market open, weaker than the previous fix of 6.8906.

In the spot market, the yuan opened at 6.8955 per dollar and was changing hands at 6.9000 at midday, 25 pips away from the previous late session close.

After slumping 6.5 per cent against the surging dollar in 2016, the Chinese currency has regained composure so far this year, advancing 0.7 per cent and fluctuating in the 6.8295-6.9628 range.

Tang Xiangbin, a forex analyst at China Minsheng Bank, attributed the relatively calmness in the yuan to recent signs of fatigue in the “Trump trade", which had helped to boost the dollar.

“People are starting to question the logic of the 'Trump trade' ... which is why you see the dollar index is starting to fluctuate at a relatively high level,” Yang said, pointing out that the yuan's value is negatively correlated with the dollar index.

The dollar index, which measures dollar's value against major world currencies, has lost 1.7 per cent so far this year, after surging nearly 30 per cent during the previous three years.

In addition, China's cross-border money flows are expected to be more balanced this year due to tighter capital controls and improving fundamentals in China's economy.

Indeed, data on Friday is expected to show China's foreign exchange reserves edged up to $3.01 trillion in March, the second modest month of gains in a row. They rebounded above the closely watched $3 trillion level in February for the first time in eight months.

Other data in coming weeks is expected to show China posted solid economic growth in March, with exports picking up and manufacturing firms benefiting from a months-long construction boom.

Reflecting easing concerns over capital flight, Pan Gongsheng, China's top forex regulator, said the foreign exchange market is relatively stable and cross-border capital movement is “gradually becoming balanced", state news agency Xinhua reported on Thursday.

Also helping to ease pressure on the yuan, Trump looks unlikely to formally declare China a currency manipulator next week, foreign exchange policy experts say.

The US Treasury would have to radically change its definitions of currency manipulation in order to squeeze China into that label for its next report due on April 14, said these experts, several of whom contributed to past Treasury analysis of foreign exchange practices.

But with the Trump administration pushing a trade agenda aimed at reducing US trade deficits, particularly those with China, experts said that they expect the Trump administration to consider changes aimed at deterring future manipulations.