Yuan jumps on China-US trade talk re-launch

Doubts about whether di­a­logue can bring break­throughs fuel un­cer­tainty

Global Times - - Biz Markets -

China’s yuan strength­ened on Thurs­day af­ter the Trump ad­min­is­tra­tion in­vited Chi­nese of­fi­cials to restart trade talks.

The yuan had opened at a near one-week high against the US dol­lar, sup­ported as well by a firmer of­fi­cial yuan mid­point set­ting by the cen­tral bank.

News of a fresh round of talks sup­ported the yuan and pres­sured the dol­lar, though few mar­ket watch­ers were op­ti­mistic of a break­through af­ter sev­eral ear­lier meet­ings made lit­tle head­way.

“While we agree this should pro­vide short-term re­lief, the road ahead can still be tricky,” Tai Hui, chief mar­ket strate­gist for JP Mor­gan As­set Man­age­ment, said in a morn­ing note.

“China did pro­vide con­ces­sions ear­lier in the year to buy more US prod­ucts and re­duce the bi­lat­eral deficit as well as open­ing-up mar­kets to for­eign com­pa­nies. If this did not sat­isfy the US six months ago, China may not be able to of­fer much more than that, es­pe­cially if this in­volves ad­just­ing its Made in China 2025 pol­icy.”

But a trader at a Chi­nese bank said mar­ket sen­ti­ment had im­proved fol­low­ing the lat­est de­vel­op­ments, par­tic­u­larly as the pro­posed meet­ing was set to be be­tween high­er­level of­fi­cials, giv­ing the mar­ket hope that the talks could yield a break­through.

Prior to the mar­ket open­ing on Thurs­day, the Peo­ple’s Bank of China (PBC), the coun­try’s cen­tral bank, set the mid­point of the cur­rency’s daily trad­ing band at 6.8488 per dol­lar.

That was 58 pips firmer than the pre­vi­ous fix of 6.8546, and largely in line with mar­ket fore­casts fol­low­ing a fall in the dol­lar overnight, traders said.

In the spot mar­ket, the on­shore yuan opened at 6.8327 per dol­lar, its strong­est level since Septem­ber 7, and was trad­ing at 6.8450 per dol­lar.

“Ad­mit­tedly, the RMB mar­ket will likely re­main highly un­cer­tain in the rest of this year, de­pend­ing on how the China-US trade war un­folds,” Ken Che­ung, se­nior Asian FX strate­gist at Mizuho Bank in Hong Kong, said in a note.

He said the yuan is un­likely to fall be­low 7 per dol­lar “given [the] PBC’s clear stance to de­fend the RMB.”

The off­shore yuan booked its best day in two-and-a-half weeks on Wed­nes­day, with strong gains in the US ses­sion af­ter trade talk news emerged.

On Thurs­day, it had weak­ened 0.1 per­cent from its US close to 6.8430 per dol­lar.

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