TheÂ Chinese yuan is continuing toÂ post significant gains inÂ theÂ aftermath ofÂ theÂ US-China trade truce. With trade hostilities suspended forÂ 90 days, theÂ yuan is looking toÂ pare its steep losses, andÂ some analysts believe theÂ currency could become aÂ global heavyweight inÂ theÂ years toÂ come. Now if only theÂ economy would rally asÂ much asÂ theÂ yuan.
Over theÂ weekend, President Donald Trump andÂ President Xi Jinping sat down forÂ aÂ face-to-face meeting. While global markets were not expecting much ofÂ anything toÂ happen, theÂ two powerful leaders agreed toÂ take aÂ break from trade tensions andÂ try toÂ make some concessions. AsÂ aÂ result, theÂ US will not impose 15% hikes onÂ tariffs onÂ $200 billion worth ofÂ Chinese goods, andÂ Beijing will reduce automobile tariffs andÂ acquire more agriculture.
Negotiators will now aim toÂ establish aÂ trade agreement byÂ theÂ end ofÂ 90 days. Investors are doubtful that it will happen asÂ global equities have crumbled. But theÂ yuan is not sharing theÂ same sentiment asÂ financial markets, which seem skeptical that theÂ worldâs two biggest economies can etch out aÂ new trade pact.
But some analysts believe that theÂ yuan will experience aÂ resurgence inÂ theÂ next few years â with orÂ without aÂ trade deal with theÂ US. They argue that theÂ currency will play anÂ important global role asÂ theÂ nation permits greater foreign capital into theÂ country.
Chi Lo, senior economist forÂ Greater China atÂ BNP Paribas Asset Management inÂ Hong Kong, told CNBC:
So, if you look along that direction there’s no way theÂ yuan can be aÂ weak currency, otherwise people won’t accept it andÂ it cannot be aÂ global currency if it’s aÂ weak currency inÂ theÂ long term.
These remarks echoed theÂ sentiments ofÂ HSBC, which presented theÂ case that capital account flows will likely have aÂ greater impact onÂ theÂ future ofÂ theÂ yuan than international trade.
Meanwhile, inÂ theÂ days following theÂ big announcement, theÂ Peopleâs Bank ofÂ China (PBOC) reiterated its position that it will maintain a flexible monetary policy. Governor Yi Gang told that theÂ central bank needs toÂ employ aÂ âslow release ofÂ airâ andÂ adopt aÂ âsoft landingâ once theÂ economy overheats orÂ asset price bubbles form.
TheÂ USD/CNY currency pair declined 0.67% toÂ 6.8371, from anÂ opening ofÂ 6.8834, atÂ 15:40 GMT onÂ Tuesday. TheÂ EUR/CNY fell 0.51% toÂ 7.7687, from anÂ opening ofÂ 7.8089.
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