China's yuan hits three-year high as dollar eases after US-Iran peace deal

HONG KONG: China’s yuan rose to a fresh three-year high against the dollar on Monday as reports that the United States had agreed to a peace deal with Iran boosted risk appetite.

 The US dollar, seen as a safe-haven currency, slid to a 10-day low against its major peers after US and Iranian officials said they have struck a deal to end their war and reopen the Strait of Hormuz.

The reopening of the critical waterway for oil shipments is expected to lower energy prices, which have been weighing on the global economy and a number of import-dependent Asian nations.

The onshore yuan touched 6.7573 in early trade, its strongest level since February 3, 2023.

 Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.8088 per dollar, its strongest since Feb 10, 2023 and 544 pips weaker than a Reuters’ estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The offshore yuan also hit a more than three-year high in early trade.

 The yuan has outperformed its regional peers this year despite the Middle East conflict roiling global markets, backed by China’s robust exports growth, energy self-sufficiency and steady fixing dynamics.

 The yuan is up 0.1% against the dollar this month, and 3.5% firmer this year.

 Goldman Sachs expects the yuan strength to extend in the months ahead.

 “Given the highly undervalued levels of the currency and China’s trade competitiveness, policymakers should be, and are proving, more tolerant of gradual currency strength,” Goldman Sachs analysts said in a note.