Source:
https://scmp.com/business/china-business/article/2085343/yuan-firms-slightly-ahead-first-summit-between-xi-jinping
Business/ China Business

Yuan firms slightly ahead of first summit between Xi Jinping and Donald Trump

The Chinese yuan edged up against the US dollar on Thursday, as President Xi Jinping and President Donald Trump prepare for their first ever face-to-face meeting later in the US day.

Analysts maintain low expectations on tangible outcomes from the meeting regarding trade and currency issues, and say the yuan is likely to remain stable during the two-day summit taking place in Florida.

The onshore yuan in Shanghai edged up 0.02 per cent or 13 basis points to 6.8952 against the US dollar at 10.08am, recovering from a two-week low on Wednesday. The offshore yuan in Hong Kong was virtually flat, rising 8 basis points to 6.8840 per dollar.

On Thursday, the People’s Bank of China set the yuan reference rate at 6.8930 against the greenback, 24 points weaker from its fix a day earlier.

“With the outcome of the pending meeting uncertain, investors may decide to observe from a distance with safe-haven assets becoming an option,” Lukman Otunuga, Research Analyst at FXTM wrote in a note.

The Japanese yen strengthened 0.2 per cent to 110.5 against the US dollar on Thursday morning.

Trade issues are likely to take centre stage during the summit, according to a DBS report, which noted that Trump named China the “grand champion” at currency manipulation during his presidential campaign.

But the market is keeping expectations low for tangible outcomes in regards to trade and currency from the meeting. In particular, the onshore yuan forwards’ discount to the spot prices remains stable, the bank said.

“It suggests investors see Trump’s tough talk on currency manipulation [as having] a limited impact on Beijing’s currency regime,” DBS analysts said.

“Emerging market flows have been quite strong this week, and any topside in USD/CNH should run into plenty of offers above 6.9000,” Jeffrey Halley, senior market analyst at OANDA said.

But the chances of onshore and offshore yuan being allowed to trade materially weaker while Xi is visiting the US will be “almost zero”, he added, suggesting the offshore yuan to trade between 6.8400 and 6.9000.