China’s yuan climbs to near seven-month high as investors assess tariff risks

HONG KONG: China’s yuan rose to near a seven-month high against the dollar on Monday, as Asian currencies were broadly stronger while the greenback fell on Trump’s new tariff threats.

Both China’s onshore yuan and its offshore counterpart advanced past the 7.17 in early Asian trade, hitting the strongest level since November 8.

The dollar recovered slightly on Monday after US President Donald Trump abruptly delayed 50% tariffs on European Union goods. The currency had tumbled on Friday following Trump’s new EU tariff comments.

By 0403 GMT, the yuan was 0.08% higher at 7.1744 to the dollar after trading in a range of 7.1674 to 7.1775.

The yuan is up 1.4% against the dollar this month, and 1.7% firmer this year, on the back of “sell US” sentiment due to tariff policy uncertainties and a recent Moody’s downgrade of the US sovereign credit rating.

Goldman Sachs describes the recent strength in the yuan as the “renaissance” of the currency, expecting it to rise against the dollar over the next 12 months.

The broad dollar weakness has resulted in moving “diversification demand away from dollar assets,” Goldman Sachs’ China equity strategist Kinger Lau said in a note.

China’s yuan inches higher, set for fifth straight weekly gain

The bank expects the yuan to reach 7.20, 7.10 and 7.00 on a 3-month, 6-month and 12-month horizon against the dollar.

Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1833 per dollar, its strongest since April 2 and 96 pips weaker than a Reuters’ estimate.

This is the second time in May the central bank has set the yuan fixing weaker than Reuters’ estimate.

“It means the CNY fixing guidance may now serve to smooth out two-way volatility rather than countering one-way depreciation pressure,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

But he believes the central bank is not seeking yuan appreciation, which could weigh on the export sector amid heightening tariffs.

Separately, in Hong Kong, the overnight Hong Kong interbank offered rate (Hibor) hit 0.02336%, a record low since data became available in 2006 due to ample liquidity.