Beijing Expected to Bolster Yuan Before Visit by Trump

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Currency strategists expect the People’s Bank of China to push the Chinese yuan higher in the lead up to Donald Trump’s visit to Beijing this month.

Trump campaigned heavily on the issue of unfair trade practices by China, and promised to label the country a “currency manipulator” for putting downward pressure on the value of the yuan in order to bolster its exports.

While the Treasury Department has declined to make good on Trump’s promise since he assumed office, regional analysts expect Beijing to play it safe during his official visit from 8 – 10 November.

Gao Qi a strategist at Scotiabank in Singapore, said to Reuters that he expects the yuan to see a “strengthening bias” against the dollar in the lead up to the US President’s visit.

“It will be a friendly sentiment,” said Gao.

Sue Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong, said that Beijing would be “apt to appease Trump…with currency appreciation to avoid being criticised for engaging in competitive devaluation for the purposes of boosting exports.”

The yuan has risen by more than 5% against the greenback since the start of 2017, following a weak performance by the dollar and a tightening of capital controls.

It dropped by 6.5% in 2016, providing President Trump with ample fodder while on the campaign trail.

Despite ongoing talk of exchange rate loosening as part of the government’s broader financial liberalisation agenda, the Chinese central bank keeps the yuan on a fairly tight leash, restricting its movements to 2% on either side of a daily reference rate asset each morning.

Analysts expect any intervention in the exchange rate around the time of Trump’s visit to involve tinkering with the reference rate by PBOC, as opposed to spot market interventions.

The exchange rate has been a fraught issue the recent history of Sino-US relations, with Washington labelling China a “currency manipulator” in 1994.

In 2005 Beijing removed the yuan’s peg to the dollar, and has since kept the exchange rate stable during a total of five state visits by US Presidents.

 

 

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