SHANGHAI: China's yuan slipped in early trade on Friday as investors returned from a week-long holiday to play catch-up with broad strength in the greenback, but signs of positive developments in Sino-US relations limited its losses.
The dollar held steady against a basket of currencies ahead of US labour market data due later in the session, with the dollar index trading not far from its one-year high.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4604 per dollar, 250 pips or 0.39% firmer than the previous fix of 6.4854, the strongest level since Sept. 24.
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In the spot market, onshore yuan opened at 6.4490 per dollar and was changing hands at 6.4490 at midday, 10 pips weaker than the previous late session close last Thursday.
Several currency traders said the dollar strength during the long Chinese holiday was offset by positive news on the relations between Beijing and Washington, while overall market sentiment had also improved.
US national security adviser Jake Sullivan and China's top diplomat, Yang Jiechi, had their first face-to-face encounter this week since an unusually public and acrid airing of grievances in Alaska in March.
Meanwhile, US President Joe Biden and Chinese President Xi Jinping have agreed in principle to hold a virtual meeting before the year's end.
A trader at a Chinese bank said markets took the meetings as positive developments in the relations between the world's two largest economies, as souring bilateral ties have been one of the key factors influencing the yuan in the last few years.
"The Chinese yuan is likely to rally moderately versus the dollar in the weeks ahead," said Gao Qi, FX strategist at Scotiabank in Singapore.
"The US and China will likely revive the bilateral trade talks in the next three months, as the Phase 1 trade deal is set to expire at the end of this year."
Earlier this week, US Trade Representative Katherine Tai said she hoped to hold discussions soon with Chinese counterparts.
By midday, the global dollar index rose to 94.249 from the previous close of 94.181, while the offshore yuan was trading at 6.4525 per dollar.
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