"It remains to be seen whether or not Trump's comments prove to be green shoots or a false dawn over the prospects of a meaningful US-China trade deal," said Han Tan, market analyst at FXTM, a foreign-exchange trader. "The risk-on sentiment may prove fleeting, given that new and heightened tariffs are set to be imposed on US and Chinese goods by next week," he added. China's yuan weakened for the ninth straight session to a fresh 11-1/2-year low, despite a brief rebound in early trade following a much stronger-than-expected midpoint set by the central bank.
The onshore spot yuan weakened as much as 0.2% to 7.165 against the dollar. The drop put pressure on other currencies, with the Malaysian ringgit, Philippine peso and Singapore dollar all trading weaker. The won and rupee, which both lost more than 0.6% on Monday, were the big gainers. The won added 0.5%, while the rupee strengthened to as much as 71.710 against the dollar to crawl out of the 8-month trough it hit on Monday.
The yuan's fall to a 11-1/2 year low came despite the People's Bank of China (PBOC) setting its official yuan midpoint at 7.0810 per dollar, which was weaker than the previous fix but firmer than expected. The fix was seen as an official attempt to prevent the currency from registering sharper losses. FXTM's Han Tan said the PBOC is in a tricky spot, having to navigate a fine line tolerating more yuan weakness in order to offset economic headwinds.
The PBOC must ensure it doesn't cede too much ground to yuan bears so as to trigger capital outflows, he said. "Overall, the softer CNY is playing its role as a pressure valve that eases China's economic pressures, hence the yuan is expected to maintain an easing bias over the near-term." This year, the yuan has shed slightly over 4% and is the region's worst performer after the Korean won.