Yuan soars to six-month peak, surpasses critical level following Sino-US tariff truce agreement.
HOLY SHIT, YUAN STRONG AS FUCK!
China's currency, the yuan, surged to a six-month high against the dollar on Tuesday, smashing the 7.2 per dollar barrier, following a trade war truce between China and the US and a bit of meddling by Beijing's central bank.
This jaw-dropping move left markets reeling, and analysts were left scratching their heads, trying to make sense of the chaos.
The wild deal cookin' up between US and Chinese officials over the weekend in Geneva exceeded all expectations, as both sides decided to undo a considerable chunk of the tariffs they slapped on each other's goods since April last year. This sickeningly sweet news sent the market into a dancing frenzy, pumping up the yuan's value significantly.
The dollar, on the other hand, took a nose dive due to a boost in overall sentiment, as the specter of a recession in the US began to fade, and investors felt less anxious about the Federal Reserve needing to slash interest rates imminently.
With all the festivities, the yuan shot past the 7.2 per dollar threshold in both onshore and offshore trades, levels that hadn't been seen since November. OCBC Bank analysts cheered the news, writing, "This de-escalation does not equate to a full return to normalcy."
The analysts warned that the trajectory of the US-China trade relations over the next 90 days would hinge on progress during direct talks and cooperation with third-party countries and trade blocs.
As of 0211 GMT, the onshore yuan reached a high of 7.1855 per dollar, the strongest level since November 11, before settling at 7.1902 around midday, a solid 0.24% up from its previous close. Meanwhile, its offshore counterpart scaled a six-month high of 7.1791 before settling at 7.1839.
Before the market even woke up, the People's Bank of China (PBOC) lifted its official midpoint fixing – a number that serves as a beacon for traders – to a level firmer than the psychologically vital 7.2 per dollar mark for the first time in over a month.
In other words, China's central bank helped shove the yuan up through the 7.2 per dollar barrier, giving traders a cheeky wink and a sneaky nudge.
However, some analysts warned that the yuan's rapid climb could send exporters running for the hills, settling their dollar deposits and exacerbating the yuan's rise even further. BNP Paribas' Ju Wang advised against the yuan heating up too much, saying, "We maintain our view that the PBOC prefers to keep the yuan from appreciating too much against the dollar."
- The rapid appreciation of the yuan, driven by the trade war truce and intervention by China's central bank, has left analysts pondering the potential risks for exporters and the subsequent impact on the yuan's value.
- Despite the current strength of the yuan, some traders and financial experts caution against it appreciating too significantly, given the potential consequences for businesses and the wider industry.
- The recent surge in the yuan's value, coupled with the reduction of tariffs in the US-China trade agreement, could potentially influence the dividends and overall profitability of trading companies in the finance sector.
