Yuan at 2-1/2 week high as U.S. Treasury chief cites trade talk progress


Adds onshore close, trader comment, chart; updates prices

HONG KONG, Sept 10 (Reuters) - The yuan rose to its strongest level in two-and-a-half weeks on Tuesday, buoyed by optimism that an agreement on trade was within reach of the United States and China.

The currency finished domestic trading CNY=CFXS at 0830 GMT up 0.24% at 7.1042 per dollar, the strongest such close since Aug. 23.

U.S. Treasury Secretary Steven Mnuchin said on Monday the world's largest economies have "made a lot of progress" in trade talks and that the United States will seal an agreement if it "can get a good deal" in the coming weeks.

Chinese officials at the vice-minister level will travel to Washington in mid-September, followed by meetings in Washington between Chinese Vice Premier Liu He, Mnuchin, and U.S. Trade Representative Robert Lighthizer.

"Right now, there is only good news and no bad news in Sino-U.S. negotiations. Market sentiment is relatively good in the short term," said a trader at a Chinese bank in Shanghai.

The trader added that the authorities will likely keep the yuan stable before the long National Day holidays, which begins on Oct. 1.

"The (central bank's) intention to adjust and control through the midpoint is very clear," he noted.

However, neither Washington nor Beijing have signaled they would shift from positions that led to a sudden escalation in tensions in May.

The yuan rallied in the afternoon, initially tracking a fall in the dollar <=USD>, and later reached 7.1 for the first time in over two weeks.

"With the midpoint stuck at where it is, which reflects the central bank's willingness to keep the yuan stable, there should be some flows coming in near 7.1," said a second trader in Shanghai who works for a foreign bank.

The People's Bank of China has set the midpoint guidance rate CNY=PBOC consistently stronger than market expectations in recent sessions. Tuesday's midpoint came in at 7.0846, stronger than Reuters' estimate of 7.0958.

With the trade war growing longer and costlier, analysts have been trimming their China forecasts. Fitch Ratings was the latest this week to cut its 2020 growth forecast to 5.7% from 6.0%.

To bolster the economy, the PBOC cut the amount of cash banks must keep in reserve on Friday for the seventh time since early 2018 to help boost lending.

On Monday, a meeting chaired by President Xi Jinping said it would create favourable conditions for private firms and improve the competitiveness of its manufacturing sector.

Policy easing, a softer dollar and trade talk progress should support the yuan and keep it in the 7.1 to 7.2 region in the short run, OCBC Wing Hang Bank's analysts wrote in a note on Tuesday.

Ken Cheung, Mizuho Bank's chief Asian FX strategist, also expects the yuan to trade in this range "unless China and U.S. make substantial progress in trade talks," he said in a note on Tuesday.

Cheung said the market had a largely muted reaction to China's inflation data earlier on Tuesday, which showed factory-gate prices sank deeper into deflation.

"Overall, the benign CPI inflation (below around 3% target) is unlikely to restrain PBOC's easing for now while bottoming PPI reduced deflation fears."

The offshore yuan CNH=D3 was trading at 7.1037 per dollar, up 0.18% on the day.

The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 91.47, firmer than the previous day's 91.13.

Midpoint CNY spot as of Sept 10https://tmsnrt.rs/2A47Xwv

(Reporting by Noah Sin; Additional Reporting by Rong Ma in Shanghai Editing by Jacqueline Wong & Kim Coghill)

((Noah.Sin@thomsonreuters.com; +852 2841 5782; Reuters Messaging: noah.sin.thomsonreuters.com@reuters.net; Twitter: https://twitter.com/noah_sin))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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