Yuan climbs as US, China work on roadmap for trade talks

The yuan firmed yesterday on news that Beijing and Washington were discussing the next steps in their trade talks, easing fears that a fresh flare-up in SinoUS tensions may derail the negotiations.

A firmer dollar prompted the People’s Bank of China to set the midpoint rate at 6.8996 per dollar, its weakest level in one week and softer than the previous fix 6.8693.

The dollar’s strength was driven by the UK government postponing a key vote on Brexit, which battered the pound.

But the yuan was supported by news that China’s Vice Premier Liu He had spoken with US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer to move trade talks forward.

Investors have feared the talks and chances of a trade deal may be in jeopardy after last week’s arrest of the chief financial officer of Chinese smartphone maker Huawei for extradition to the United States.

At midday, onshore spot was changing hands at 6.9012 at midday, about 0.1% or 87 pips stronger than the previous late session close.

The offshore yuan was at about the same level, at 6.9014. “The news helped,” said a Shanghai-based trader with a Chinese bank, referring to Liu’s conversation with his US counterparts.

He added that there were also “technical buy orders” hoping to capitalise on the yuan’s overnight fall.

But the yuan could still fall to 6.95 or 6.96 should the US Federal Reserve deliver another rate hike next week, adding to dollar strength, warned a second trader in Shanghai, who works for a foreign bank.

The yuan has lost about 5.9% so far this year.

But since the G20 meeting at the start of the month, where Chinese and US leaders agreed to a 90-day ceasefire in their trade war, it has rallied as much as 100 basis points to around 6.8 per dollar, and only retreated to the 6.9 area again on Monday.

Even if the trade talks proceed as planned, there is widespread scepticism a definitive agreement can be reached given the host of deeply divisive issues the two sides are facing, and the tight negotiating window.

The global dollar index was at 97.099, slighter weaker than the previous close of 97.219.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.43, firmer than the previous day’s 93.14.

The People’s Bank of China ( PBoC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning.