Yuan jumps on China-US trade talk re-launch

Doubts about whether dialogue can bring breakthroughs fuel uncertainty

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.