China’s yuan inches higher as investors await potential US-Iran peace talks

SHANGHAI: China’s yuan inched higher against the dollar on Tuesday, as investors awaited potential peace talks between the United States and Iran to ease Middle East tensions, while Beijing’s central bank continued to guide the market to maintain stability.

Iran was weighing participation in the peace talks in Pakistan, a senior Iranian official told Reuters on Monday, following moves by Islamabad to end a US blockade of Iran’s ports.

“Geopolitical developments remain fluid, implying two-way risk is still warranted even as markets are trading on hopes of an end to the conflict,” OCBC analysts said in a note.

 “This leaves room for disappointment should talks fail to deliver a deal.”

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint at 6.8594 per dollar, the strongest level since April 15, but 482 pips softer than a Reuters estimate of 6.8112.

The central bank has mostly set the official midpoint rate weaker than market expectations since November, a move that market participants have interpreted as an attempt to rein in excess strength and keep the currency stable.

The yuan has been one of the best-performing emerging-market currencies since the outbreak of the Iran war in late February, gaining more than 0.5% on the greenback.

 In the spot market, the onshore yuan traded slightly firmer at 6.8154 per dollar as of 0310 GMT, up from the previous close of 6.8172.

Its offshore counterpart last fetched 6.8144 per dollar as of 0310 GMT.

“CNY outperformance is fading this month as the PBOC continues to push back via weaker than the market expected CNY fixings, helping the CFETS to also lose ground after sharp appreciation in the trade-weighted index over recent months to above 100,” Barclays analysts said in a note.

They expect the yuan to trade firmer, “with 6.80 the next key line of support.”

Based on Tuesday’s official guidance, the yuan CFETS basket index, which measures the yuan’s value against its major trading partners, slid to 99.75, the lowest level since March 11, according to Reuters’ calculations. It remains up 1.8% year-to-date.