Yuan buoyed by prospects for improved Sino-US ties

SHANGHAI: China's yuan recovered on Monday, bouncing from a near one-week low against the dollar hit last week, as the market pinned its hopes on positive developments over the weekend that could lead to better Sino-US relations.

Huawei Technologies Co's Chief Financial Officer Meng Wanzhou flew back to China on Friday after reaching an agreement with US prosecutors to end a bank fraud case against her.

The release of Meng is an opportunity for a reboot of bilateral relations with the United States and Canada but "toxic political rhetoric" could still "poison" the atmosphere, the state-backed Chinese Newspaper Global Times said on Monday.

China’s yuan touches 3-week high

"Some positive soundbites and actions on the Sino-US relations front over the weekend, giving more hope for a positive turn after the USTR's trade policy review. This could be a further positive for the RMB," Terence Wu, FX strategist at OCBC Bank, said in a note.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4695 per dollar, 96 pips or 0.15% weaker than the previous fix of 6.4599.

In the spot market, onshore yuan opened at 6.4575 per dollar and was changing hands at 6.4572 around midday, 97 pips firmer than the previous late session close. The spot price touched a low of 6.4737 last week, the weakest since Aug. 27.

Several currency traders said the news of Meng's return to China lifted market sentiment, but whether the strength in the yuan would be sustainable largely depends on follow-up measures including trade tariff reductions.

Fears of widespread contagion from China Evergrande Group's debt troubles receded somewhat, with the market's focus shifting to a power crunch in China. Industrial production in several provinces has been hit by power supply shortages, according to media reports.

"There might be implications for global inflation and monetary policies," said Lu Ting, chief China economist at Nomura.

"We guess China's supply shock will very likely result in a shortage of goods for the Thanksgiving and Christmas shopping season and will likely further push up global CPI inflation, especially in (developed market) countries."

The Japanese investment bank cut its 2021 economic growth forecast for China to 7.7% from 8.2% previously.

China's National Energy Administration has told coal and natural gas companies to increase their output to ensure the country has sufficient energy supplies to keep homes warm during winter, the regulator said on Sunday.

Around midday, the global dollar index fell to 93.217 from the previous close of 93.268, while the offshore yuan was trading at 6.4564 per dollar.