China's yuan edges up on signs of thaw in Sino-US trade relations

[SHANGHAI] China's yuan inched up against the US dollar on Thursday, as positive progress in Sino-US trade tensions continued to offer support, but gains were capped by some demand for the greenback.

Yuan traders said the key driver of the market remained trade disputes between the world's two largest economies, and market embraced any signs of easing in the tensions.

China has made its first major purchases of US soybeans since President Donald Trump and his Chinese counterpart Xi Jinping struck a trade war truce earlier this month, while Beijing also appears to be easing its high-tech industrial development push, dubbed "Made in China 2025," which has long irked the United States.

Prior to market opening on Thursday, the People's Bank of China (PBOC) set the midpoint rate at 6.8769 per US dollar, 295 pips or 0.43 per cent firmer than the previous fix of 6.9064.

Strength in the official guidance rate reflected losses in the global US dollar index overnight. In the spot market, the onshore yuan opened at 6.8780 per US dollar and was changing hands at 6.8713 at midday, 80 pips firmer than the previous late session close and 0.08 per cent stronger than the midpoint.

Trading range of the yuan has moved to firmer levels, said a trader at a Chinese bank in Shanghai, who added that the yuan's recovery would remain fragile until Beijing and Washington actually end their tariff war.

The yuan traded in a wide range on Thursday morning, but interest in loading up on dollars emerged when the yuan had a sizable rise, said a second trader at a Chinese bank.

"On the Sino-US trade front, we continue to urge against excessive optimism, as recent positive headlines (auto tariffs and tech developments) have originated from the US side, without corroboration (as yet) from the Chinese," OCBC Bank said in a note on Thursday.

While developments in the Sino-US trade war was still under spotlight, traders said they would also pay attention to the upcoming policy meetings in China and the United States.

China's Central Economic Work Conference (CEWC) is usually held in mid-December.

Key growth targets and policy goals are discussed but typically not announced until the National People's Congress in March. The date of this year's meeting is still not announced yet.

The US Federal Reserve is widely expected to raise interest rates next week and possibly indicate a trajectory for further tightening expectations, which could set the tone for currencies and other financial markets in coming months. The offshore yuan was at 6.8692 per US dollar as of midday.

REUTERS