Upcoming China-US phase one agreement drives up yuan rate


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Upcoming China-US phase one agreement drives up yuan rate


Source:Global Times    Published: 2020-01-13

The appreciation of the yuan reflects the positive news that China and the US are set to sign a widely expected phase one trade agreement, but in the long run, the currency's exchange rate depends on how the deal is implemented, a Chinese financial expert said on Monday.

The offshore yuan strengthened to a five-month high, moving beyond 6.9 per US dollar.

The appreciation of the yuan reflects news that Chinese Vice Premier Liu He, who is also China's chief trade negotiator, is due in Washington on Monday to sign the phase one deal, Zhao Xijun, vice president of the School of Finance of Renmin University of China, told the Global Times on Monday.

"The news is one of the drivers of the recent stronger yuan trend, but trade itself is not enough to affect the yuan's trend, as there are many factors influencing exchange rates including financial investment and trade."

Zhao also noted that the news about the deal is just a short-term factor in the yuan's exchange rate. In the long run, "it will depend on how the two sides execute the agreement and other factors such as each country's financial policies."

Since the US initiated the trade war with China two years ago, the yuan has fluctuated, as negotiations between the world's two largest economies affected investors' confidence, but the recent optimism about the deal has improved confidence.

Goldman Sachs recommended in a recent note that investors sell the Philippine peso against the offshore yuan, as the latter "may benefit from improving sentiment as the US and China prepare to ink a phase-one trade deal," Bloomberg reported.

Meanwhile, Bloomberg said Goldman has plans to double its headcount in China to 600 over the next five years, citing an unidentified source.

A Goldman Sachs spokesperson confirmed with the Global Times on Monday that the reported headcount increase is true.

"Apart from the trade deal, 2020 is the year that China is set to reach its first centennial goal - finishing building a moderately prosperous society. Under the fast-changing international environment, China has set stabilizing the economy as its top priority in 2020. All of these factors boosted investors' confidence, resulting in higher expectations," Zhao noted.

The two-year-long trade war helped China achieve one of its financial goals - the greater use of the yuan in international commerce and financial transactions, the South China Morning Post reported.

"Due to China-US trade friction, China has increased its trade with other markets, which increased the yuan's use in financial transactions and helped the yuan's internationalization," Zhao said.

However, he added, trade alone contributed small portion to the yuan's internationalization, which highly relies on capital investment in China's financial sector, and China has a long way to go.

Zhao Xijun is associate dean of School of Finance and senior fellow of Chongyang Institute for Financial Studies, Renmin University of China.