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Yuan Jumps to Strongest Since August, Lifted by U.S.-China Talks - BLOOMBERG

JANUARY 10, 2019

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  • Chinese assets advance as talks with U.S. end on positive note

  • Nomura sees China slowdown, U.S. relations as mid-term risks

The offshore Chinese yuan climbed to the strongest since August as trade negotiations between the world’s largest economies concluded on a positive note while the U.S. dollar tumbled to a three-month low.

The offshore currency gained as much as 0.7 percent to 6.8074 per dollar in the New York afternoon, with volumes almost double the recent average, according to traders based in London. The onshore yuan closed Wednesday at 6.8175, the highest since August and a 0.5 percent advance from Tuesday. China’s benchmark Shanghai Composite Index also jumped 0.7 percent to a three-week high.

 

The office of U.S. Trade Representative Robert Lighthizer said Wednesday that three days of discussions in Beijing focused on China’s pledge to buy American products. The two sides considered ways to achieve “fairness, reciprocity and balance” in trade relations. Lighthizer is expected to meet with Chinese Vice Premier Liu He, a top economic adviser to President Xi Jinping, later this month.

While positive momentum surrounding Chinese assets may lift the yuan toward 6.8 per dollar - a key level that has capped the currency’s advances since late July - doubts remain over medium-term risks that could weigh on the exchange rate. Nomura strategists Craig Chan and Wee Choon Teo cautioned against excess optimism even if results from trade negotiations are more positive than what investors had expected.

One risk that could derail sustained yuan gains is slower global growth. China’s economic expansion is set to moderate further in the coming months, according to a Nomura client note dated Wednesday. The U.S. administration may continue to see China as a strategic competitor even with a trade deal in place, which suggests geopolitical frictions are likely to persist, Nomura reckons.

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