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Currencies

Hopes for trade talks move yuan to 6-month high

Chinese currency climbs following Beijing meeting with Americans

The yuan strengthened following China-U.S. trade talks that wrapped up on Jan. 9  in Beijing.   © Reuters

SHANGHAI -- The yuan has recovered to a roughly six-month high against the dollar as hopes for progress in China-U.S. trade talks have grown.

The Chinese currency traded at 6.75 per dollar on Tuesday, strengthening from just over 6.80 last week. The working-level trade talks in Beijing ended last Wednesday, one day later than originally planned, with indications that ministerial-level meetings could begin later this month.

The developments spurred yuan-buying since "deteriorating Sino-U.S. relations had served as a reason to sell the currency," said an official at a foreign bank.

The yuan is now trading at a level close to the highs seen last July, when the U.S. imposed the first round of tariffs on Chinese goods. The punitive U.S. duties had sent yuan approaching 7 against the dollar in the second half of 2018.

That the yuan is trading at around 6.70 signals China's wish for easing of tensions, an executive at a major Chinese bank said, echoing a widespread view.

A supply-demand factor may also prop up the Chinese currency as more companies convert the dollars held as hedge against the weakening of the yuan.

"There are many companies that keep on hand dollars gained from exports," said a manager at a Bank of China branch.

The yuan crept close to the 7-per-dollar threshold from the end of October through November last year, marking the weakest point in a decade thanks to the trade war. There were signs of speculative yuan-selling of the like seen in 2015 and 2016.

China took various steps to prevent the yuan from hitting the threshold, seeking to avoid criticism from U.S. President Donald Trump, who has accused it of manipulating its currency.

December's summit in Argentina, where Trump and Chinese President Xi Jinping agreed to discuss trade and structural issues, helped to ease the pressure on the yuan.

Yuan-selling has also lost steam as expectations have grown that China will step up efforts to stimulate the economy while the U.S. will be less inclined to raise interest rates.

China has lowered the reserve requirement ratio for banks and allowed local governments to fast-track issuance of bonds, all in a bid to prop up the economy.

"The Xi leadership will not accept economic disorder ahead of October's 70th anniversary" of the founding of the state, said an official at a Chinese brokerage.

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