SHANGHAI: China's yuan ticked higher against the dollar on Wednesday, as heavy corporate demand for the local currency outweighed broad greenback strength and an amicable meeting between US and Chinese leaders broadly supported the investor mood.
Presidents Joe Biden and Xi Jinping held an hours-long virtual meeting on Tuesday. Although it appeared to yield no immediate outcomes, it gave the two leaders opportunity to nudge their relations away from icy confrontation.
Trade disputes failed to appear as the top agenda, but investors still hoped further improvements in bilateral relations and chances of partial tariff removals.
"There was no mention of the trade deal or tariffs in either readout, despite their major role in the US-China economic relationship at the moment, and despite the participation of both Vice Premier Liu He and Treasury Secretary Janet Yellen in the meeting," analysts at Goldman Sachs said in a note.
"While we had not expected a major breakthrough on this front, the lack of any commentary was mildly surprising. Still, targeted US 'tariff exclusions' in response to requests by US companies remain a possibility in coming weeks and months, in our view."
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3935 per dollar, 11 pips weaker than the previous fix of 6.3924.
In the spot market, the onshore yuan opened at 6.3875 per dollar and was changing hands at 6.3895 at midday, 22 pips firmer than the previous late session close.
Traders said while the market continued digesting the Biden-Xi meeting, corporate clients showed rising interests to convert their FX positions into the yuan, shrugging off the strengthening dollar.
Chinese companies traditionally have higher demand for the yuan towards the year-end for various payments to prompt heavier dollar selling into the local currency and drive the yuan firmer.
"The yuan is likely to stay stable at end of this year," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
"But the market has started to bet that the yuan will have some depreciation pressure next year, mainly from the Federal Reserve."
The Fed will begin reducing the pace of its bond purchases later this month, with many market participants expecting the US central bank to hike interest rates late 2022.
Monetary policy tightening in the United States could change global fund flow into dollar-denominated assets to increase capital outflow pressure from China and pressure the yuan.
In global markets, the dollar traded close to a 16-month peak versus a basket of major peers on Wednesday, as a run of strong economic data boosted bets for earlier Fed rate hikes.
By midday, the broad dollar index rose to 96.115 from the previous close of 95.943, while the offshore yuan was trading at 6.3899 per dollar.
Comments
Comments are closed.