China seen to be complying with US trade war deal by allowing market forces to dictate yuan exchange rate

The phase one trade deal between China and the United States, set to be signed next week, is expected to include clauses prohibiting currency manipulation of the yuan

The yuan has started the year strongly due in part to seasonal needs by Chinese exporters for cash ahead of the Lunar New Year holiday

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China’s Vice-Premier Liu He is expected to sign the phase one trade deal with the US President Donald Trump in Washington next week. Photo: Bloomberg

Published: 10:30am, 9 Jan 2020Updated: 8:25pm, 17 Feb 2020

China’s central bank has stood back from intervention so far this year and let market forces push up the yuan’s exchange rate ahead of the anticipated signing of the phase one trade agreement with the United States next week that is expected to include a clause prohibiting currency manipulation.

The yuan started the year with a 0.26 per cent gain against the US dollar, becoming the second best performer among Asia’s 11 most traded currencies, according to Bloomberg data.

On Wednesday, the partially-convertible yuan was trading near a five-month high at 6.94 per US dollar after Tuesday’s rally because of market demand and supply forces rather than policy guidance from authorities.

American officials have said the trade deal includes a clause prohibiting currency manipulation after having previously demanded China limit the yuan’s depreciation that would offset the impact of US tariffs on Chinese goods.

In August, the US Treasury Department declared China a currency manipulator for the first time in 25 years after the yuan fell below the psychologically important level of 7 to the US dollar in response to US tariffs. It is unclear if China’s manipulator designation will be addressed by the US as part of the interim trade agreement.

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