China lowers yuan's trading range but currency stabilizes

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The People's Bank of China set the daily reference point at 7.0136 yuan per dollar.

Analysts say a sharp drop in the yuan currency this week may offer only limited help for Chinese exporters, who are facing additional US levies next month, shrinking profit margins, and sputtering demand worldwide. Exports and imports in July fell 0.8 percent to US$298 billion, of which exports grew 3.3 percent while imports dropped 5.6 percent.

While China's exports to the US continued to shrink in July in the face of stiffer tariffs, shipments picked up to Europe, South Korea, Taiwan and, most noticeably, Southeast Asia (ASEAN).

The better-than-expected trade readings helped buoy Asian stock markets, which suffered a heavy selloff earlier in the week as the Sino-U.S. trade war intensified and the yuan skidded to 11-year lows.

But the truce was shattered last week, after Trump vowed to impose a 10 percent tariff on US$300 billion of Chinese imports from September 1, which would extend levies to effectively all of the goods China sells to the US.

The trade war has knocked China from its position as the top US trade partner-it now holds the No. 3 spot after Mexico and Canada.

And last week United States army Pacific commander General Robert Brown said the United States would be conducting war game exercises which will focus on a scenario in the South China Sea.

Can China maintain the trade momentum?

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The USDA report confirmed that export shipments of US agricultural goods have continued despite the rising tensions.

But the figure for the first seven months of this year was up by around 4 percent, indicating a continuing imbalance.

Chinese tariffs on USA soybeans have slashed exports of the most valuable US crop and prompted the Trump administration to compensate farmers for two years with as much as $28 billion.

China's central bank set the yuan's midpoint weaker than 7 per USA dollar for the second time this week early Friday.

Beijing fired back by allowing its currency, the yuan or renminbi, to weaken and by suspending purchases of American farm goods.

The label violates common sense and professionalism, as the U.S. Treasury called China's decision not to intervene in exchange rate depreciation "currency manipulation", and this is nothing more than a political manoeuvre, said Wang Chunying, spokesperson and chief economist with the State Administration of Foreign Exchange.

This week's moves signaled the PBOC is comfortable with currency weakness while also demonstrating that China isn't prepared to let the yuan go into the kind of downward spiral that in 2015 spurred capital outflows.

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