The offshore Chinese yuan staged its biggest rally in more than four months as the US reached a trade agreement with China, paving the way to at least a temporary end to tension that has roiled markets all year.
The yuan advanced 1.2% to 6.9457 per dollar, the highest since July 31 after trimming a gain of as much as 1.5% and revisiting its 200-day moving average for the first time since July. The Chinese currency at one point squeaked past the key 7.00 key level last breached in August — ironically, after President Donald Trump threatened to raise tariffs on Chinese goods as talks stalled.
Trump signed off on a so-called phase-one trade deal, averting the December 15 introduction of a new wave of US levies on about $160 billion of consumer goods from the Asian nation, Bloomberg News reported. The US has added a 25% duty on about $250 billion of Chinese products and a 15% levy on another $110 billion of its imports over the course of a roughly 20-month trade war.
The onshore yuan, meantime, closed at mid-morning New York time 0.15% higher, at 7.028 per dollar, just after news had broken that an agreement was nearing completion but before Trump signed off on it.
The reference rate was set at 7.0253 per dollar and has stayed weaker past 7 level since November 12.
Strategists from Australia & New Zealand Banking Group wrote in a client note that the yuan will weaken to 7.15 per dollar by the end of 2020 even as trade tension fades. They said a slowing Chinese economy, narrower current account surplus and strong onshore dollar demand for debt repayment will weigh on the currency.