Wires

Yuan hits 5-1/2-week lows as Trump heightens tariff threat

HONG KONG, Dec 4 (Reuters) - The yuan dropped to its weakest level since late October on Wednesday as U.S. President Donald Trump once again threatened to extend the 17-month long trade war with China, raising the spectre of fresh tariffs on Chinese goods within weeks. Trump said on Tuesday a trade agreement with China might have to wait until after the U.S. presidential election in November 2020, declaring "I have no deadline" to seal such a deal. Planned tariffs on Chinese imports will be imposed on Dec. 15 unless there is some real reason to postpone, such as substantive progress in talks, U.S. Commerce Secretary Wilbur Ross told CNBC on Tuesday. The renewed fears over the fluid situation around the trade talks were enough to hurt the offshore yuan, which crumbled 0.6% on Tuesday evening to its weakest level since Oct. 18. It was still down 0.1% at 7.0721 as of midday on Wednesday. The onshore yuan opened on Wednesday at its softest since Oct. 25, and was off by more than 0.1% at 7.0691 per dollar at midday. "If Dec. 15 tariffs go live, markets may quickly extrapolate further escalation in tariffs pushing USD/CNH towards 7.30," Citi's analysts wrote in a note on Wednesday. "While on the other hand if the expectations of potential tariff rollback take a firmer hold then USD/CNH may quickly dip towards 6.90," they added. Sources in Beijing and Washington familiar with the talks said that the two countries are still wrangling over several issues, including whether existing U.S. tariffs will be removed and specific levels of Chinese purchases of U.S. agricultural products as part of a "phase one" trade deal. The protracted trade war is taking a toll on the Chinese economy, with a Reuters analysis on Wednesday showing that capital investment by Chinese firms has ground to its slowest pace in three years. Traders in China said uncertainty will remain around the yuan's outlook ahead of next year's U.S. presidential election. "It's almost election time, we can't believe anything. Maybe tomorrow the talks will be sorted. Anything is possible right now," one Shanghai-based trader said of the election risk. Prior to the open, the People's Bank of China set the midpoint rate at 7.0382 per dollar prior to market open, softer than Reuters' estimate of 7.0325. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 91.68, weaker than the previous day's 92.02.

The yuan market at 4:03AM GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 7.0382 7.0223 -0.23%Spot yuan 7.0691 7.061 -0.11%Divergence from 0.44%

midpoint*

Spot change YTD -2.77%Spot change since 2005 17.08%

revaluation

Key indexes:

Item Current Previous ChangeThomson 91.68 92.02 -0.4

Reuters/HKEX CNH index

Dollar index 97.729 97.737 0.0

*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 7.0721 -0.04%*Offshore 7.1425 -1.46%

non-deliverable forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .

(Reporting by Noah Sin Editing by Shri Navaratnam)