Yuan rallies, yen slides ahead of US-China trade deal

London

CHINA'S yuan led a rally in trade-sensitive currencies on Monday while the Japanese yen dropped to a 71/2 month low as the imminent signing of a preliminary US-China trade deal boosted sentiment.

The US-China Phase 1 agreement, due to be signed at the White House on Wednesday, marks the first step towards ending a damaging 18-month trade dispute between the world's two largest economies.

The turnaround in the yuan, which was at multi-year lows in September, reflects investors' growing confidence that the worst of the trade war has passed.

Adam Cole, an analyst at RBC Capital Markets, said that in the absence of any significant announcements over the weekend "markets have defaulted to small risk-on moves".

The offshore yuan - the currency most attuned to China-US trade developments - crossed the 6.9 per dollar mark to hit a new 51/2 month high of 6.8866, 0.4 per cent higher on the day against the US dollar.

Some investors and analysts say the yuan is enjoying an unusual turn as a haven.

The Japanese yen weakened to its lowest since May.

The dollar rallied 0.4 per cent to 109.93 yen. The greenback has surged 2.2 per cent versus the safe-haven Japanese currency since the middle of last week, as fears of a major military confrontation between the United States and Iran gave way to a return to a rush to buy risk assets.

The yen also slid to an 8-month low against the trade-sensitive Korean won, although a holiday in Japan reduced overall trading volumes.

The Aussie, which has been hurt by worries about the economic damage of the country's ongoing bushfires, rose to hit a one-week high of US$0.6919 before those gains fizzled, as did the New Zealand dollar's.

Currency markets elsewhere were quiet, with sterling the only big mover. The pound dropped sharply after weak growth and industrial production data added to expectations of an interest rate cut this month.

On Sunday, another Bank of England policymaker, Gertjan Vlieghe, said he would vote for a rate cut this month unless economic data improved significantly.

The British currency fell 0.8 per cent to as low as US$1.2962 and against the euro to 85.75 pence.

Speculators have moved into a net long position in sterling, data shows, a stark contrast from the large short position they held a few months ago, making the pound vulnerable. REUTERS