China’s Yuan Extends Best Week Since 2017 On Biden’s Victory

The yuan extended its recent rally as the dollar weakened following Joe Biden’s presidential victory in the U.S.

The offshore yuan was 0.37% stronger at 6.5671 per dollar at 4:41 p.m. in Hong Kong, following last week’s 1.6% surge that was the biggest gain since January 2017. The currency has been on a tear since the start of June as China’s economy rebounded, attractive bond yields drew overseas funds and investors bet on more stable relations with the U.S. in the event of a Biden presidency.

With the election result all but concluded, investors are likely to focus on China’s economic reports as well as signals from the People’s Bank of China. In the absence of efforts to restrain the currency’s strength, the nation’s assets will remain attractive. Overseas traders pumped a net 19.7 billion yuan ($3 billion) into Chinese shares on Monday, according to data compiled by Bloomberg, making it the second biggest daily inflow on record.

China’s 10-year sovereign debt yields 3.2% versus 0.8% for Treasuries, while a recovery in exports and consumption is expected to continue as the country remains largely free from the pandemic.

“As long as dollar weakness continues, the yuan’s appreciation can only be slowed but not inverted,” said Gao Qi, a strategist at Scotiabank in Singapore who expects to change his year-end yuan forecast from 6.7. “We may hear comments from PBOC officials to warn the market of one-sided movement in the yuan and more relaxations on capital outflows.”

Yuan Is Halfway Through Erasing Losses Since Trade War Began

So far, there’s been no strong sign officials want to halt the rally. China is relaxing controls on the yuan at the fastest pace since a shock devaluation five years ago, easing curbs on money flowing out of the country and giving banks more say on the reference rate.

The onshore yuan rose 0.4% to 6.5800 per dollar. China’s central bank on Monday set its daily yuan fixing slightly stronger than expected, the first time it did so since Oct. 23.

– Bloomberg