The yuan rose to its strongest level in three weeks yesterday after US President Donald Trump postponed ramping up tariffs on Chinese goods “as a gesture of goodwill” following Beijing’s decision hours earlier to spare duties on some US exports.
The onshore yuan finished domestic trading up 0.38% at 7.0082 per dollar, marking its firmest close since August 23.
It was also up 0.41% in the offshore market at 0831 GMT, trading at 7.0798, its firmest since August 22.
“These goodwill gestures exchanged...has induced hope for a respite in US-China tensions even as structural differences between US and China persist,” Citi analysts wrote in a note.
The United States was due to hike tariffs on $250bn worth of Chinese imports from October 1, the 70th anniversary of the founding of the People’s Republic of China. That deadline has now been pushed back to October 15 to avoid clashing with the National Day at the request of Liu He, China’s vice premier and top negotiator in the talks with Washington, Trump said on Twitter on Wednesday.
Earlier, China announced its first batch of tariff exemptions for 16 types of US products, including some anti-cancer drugs and lubricants.
As the tariff delay helped strengthen the yuan, clients seeking foreign currencies held off buying, especially as Chinese markets are set to close on Friday for Mid-Autumn Festival, said one trader with a foreign bank in Shanghai.
Another Shanghai-based trader doubted whether the delay to tariffs would support the yuan for long.
“The Sino-US trade war has not ended. (Tariff delay) hasn’t had much impact on (turning around) the market’s pessimistic sentiment,” said the trader.
In recent weeks the People’s Bank of China has prevented the yuan’s decline from steepening by anchoring the currency with its midpoint guidance rate, from which the onshore yuan can trade 2% on either side. The PBoC set the fixing at 7.0846 per dollar yesterday, a touch stronger than Reuters’ estimate of 7.0929.
The protracted trade war has slowed Chinese growth and policymakers have ratcheted up support for the economy.
Official data on Wednesday showed that China’s banks extended new yuan loans in August.
The central bank slashed the amount of cash banks must hold as reserves last week, releasing 900bn yuan ($126.35bn). Analysts expect it to go further and cut one or more of its key policy interest rates this month.
Lower interest rates often transmit into currency weakness as investors take flight to higher-yielding markets.
But since China’s is not the only central bank to trim rates, the yuan will probably run unscathed, said Stefan Hofer, chief investment strategist at LGT Bank Asia. “It’s very natural for China to be part of the crowd,” he said. “I don’t think it will impact the currency.”
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