China's yuan off 1-week high, dollar demand weighs

SHANGHAI: China's yuan eased off one-week highs against the dollar hit in the previous session, as renewed concerns over US-China relations and doubts about the Chinese currency's recent strength prompted some investors to buy dollars.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint at 6.4497 per dollar, 69 pips firmer than the previous fix of 6.4566, the strongest since June 18.

In the spot market, onshore yuan opened at 6.4500 per dollar and was changing hands at 6.4529 at midday, 89 pips weaker than the previous late session close. The spot yuan surged to a high of 6.4363 on Friday, the firmest since Sept. 3.

The yuan has mostly traded between 6.45 and 6.5 per dollar over the past three months, but traders said a breach of the psychologically critical 6.45 threshold in the midpoint and spot rate prompted dollar purchases from corporate clients and banks' proprietary accounts.

The yuan gained last week buoyed by signs of willingness to get US-China relations back on track after President Joe Biden and President Xi Jinping discussed the need to manage competition between their countries and avoid conflict.

But some traders said it remained too early to decide if gains in the yuan would be sustainable.

"Although senior officials from China and the United States maintained communications this year, we have yet to see signs of substantial relief such as the lowering of tariffs," said Li Liuyang, chief currency analyst at China Merchants Bank.

China’s yuan touches 3-week high

A trader at a foreign bank said huge uncertainty remains around geopolitical tensions and the health of the world's second-largest economy.

He added that last week's phone call between Biden and Xi lifted market sentiment, but without solid improvements in either Sino-US relations or Chinese economic fundamentals, the yuan would be unlikely to test a new trading range.

Rocky relations between Beijing and Washington have been among the key factors influencing the yuan since the trade war began in 2018, eventually leading to tariffs from both sides.

Meanwhile, data on Friday showed new bank lending in China rose less than expected in August from a nine-month low seen in July, raising speculation over whether more stimulus was needed to shore up slowing economic growth.

By midday, the global dollar index rose to 92.659 from the previous close of 92.63, while offshore yuan was trading 0.06% away from the onshore spot at 6.4489 per dollar.