Yuan poised for biggest two-day gain in a decade after trade truce

Hong Kong

THE real winner from the trade thaw between the US and China is proving to be the yuan.

The currency rose 0.66 per cent to 6.8403 per US dollar at 5:34pm, taking its two-day gain to 1.7 per cent, the biggest since at least 2007. Bonds rallied, with the yield on 10-year government debt falling to its lowest level since April 2017, amid speculation the stronger currency will give policy makers room to ease monetary policy.

The benchmark Shanghai stock gauge added 0.4 per cent at the close.

"Investors are continuing the unwinding of short yuan positions," said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd in Hong Kong.

"I do not see much room for a further yuan rally, as the price actions of late should have largely priced in the positive news of a China-US cease-fire, and there's plenty of uncertainty in the negotiations ahead."

The 10-year yield fell 4 basis points to 3.34 per cent. The nation's bonds have been the world's best-performing sovereign notes this year, as slower economic growth spurred demand for safe-haven assets and the central bank's monetary easing added liquidity.

"There are growing expectations for the People's Bank of China to cut the reserve requirement ratio again in December, as depreciation pressures on the yuan were alleviated due to the trade war truce and economic fundamentals remain weak," said Becky Liu, head of China macro strategy at Standard Chartered plc in Hong Kong.

"The rally for government bonds will likely continue, with the 10-year yield dropping to as low as 3.2 per cent in the first quarter." BLOOMBERG