Yuan hits three-year high as dollar slips on hopes for US-Iran talks

SHANGHAI: China’s yuan rose to its strongest level in three years against the US dollar on Tuesday as the greenback eased to a one-month low on expectations that ongoingdialogue between Washington and Tehran could yield a breakthrough.

The onshore yuan strengthened to 6.8182 per dollar, its firmest point since March 23, 2023.

The offshore yuan also touched a three-year high before paring some gains.

The US said it was continuing to engage with Tehran on a possible deal to end the conflict even as it began a blockade of Iran’s ports on Monday.

“Direct negotiations suggest it’s likely past peak geopolitical risk and both sides wish to avert a worst case of a prolonged closure of the strait and further damage to civilian and energy infrastructure,” said UBS Wealth Management’s chief investment officer in a note, adding that talks between Washington and Tehran would be difficult given wide gaps on various issues.

 The spot yuan opened at 6.8204 per dollar and was last trading at 6.8194 at 0209 GMT, 106 pips firmer than the previous late-session close.

The yuan is up 1.2% against the dollar this month and is 2.6% firmer this year, as booming exports push up China’s currency and companies convert their dollar holdings to yuan.

 Analysts at TF Securities expect easing geopolitical risks and a steadier external backdrop to persist.

They said China’s exports should remain resilient and measures to boost domestic demand are gaining traction and with the improving appeal of onshore equities, the yuan is likely to edge higher, albeit with two-way volatility.

Meanwhile, major global investment banks now expect China to keep interest rates steady this year, scaling back earlier calls for rate cuts.

 New bank lending in China jumped less than expected in March, but broad money and financing growth remained sufficient to support economic expansion, signalling the central bank is in no rush to ease policy.

Before the market opened on Tuesday, the People’s Bank of China set the yuan’s midpoint rate at 6.8593 per dollar, its strongest since March 24, 2023, and 420 pips weaker than a Reuters estimate.

 The offshore yuan traded at 6.8161 yuan per dollar, up about 0.03% in Asian trading.

The dollar index, which measures the greenback against a basket of six currencies, was 0.037% higher at 98.38.