Chinese Yuan Exits 7 Territory on Trade Deal Hopes, Positive Data

The Chinese yuan has climbed above the key 7 threshold against its US peer for the first time in three months, driven by hopes that the US and China are on the cusp of agreeing to the first phase of a comprehensive trade deal. Improving trade data and a better-than-expected purchasing managers’ index (PMI) are also giving the yuan a boost.

According to General Administration of Customs, China’s trade surplus increased to $42.81 billion in October, up from $32.97 billion during the same time a year ago. This is higher than the market forecast of $40.83 billion and is the largest surplus since July.
Imports and exports did slide last month, but they improved from September. Exports dipped by 0.9% year-on-year to $212.93 billion in October, up from the 3.2% contraction in the previous month. Exports rose in rare earth minerals, rice, and refined products. Imports also fell by 6.4% to $170.12 billion, up from the 8.5% drop in September. China purchased more crude oil, coal, iron, copper ores, and unwrought copper from foreign sources.
The Caixin China General Composite PMI came in better than what the market had penciled in, clocking in at a six-month high of 52.0. But the Caixin Services PMI fell short of forecasts, tumbling to 51.1 in October.
Next on the data front will be inflation and new motor vehicle sales. Investors are anticipating a year-on-year inflation rate of 3% in October and analysts think auto sales will continue to be in the red.
The biggest news for Beijing this week was the likelihood of the world’s two largest economies signing a trade deal before the end of the year. The Chinese government told reporters that trade representatives have agreed to gradually eliminate tariffs, while Commerce Secretary Wilbur Ross said that the US government will possibly grant Huawei licenses to hundreds of US businesses.
The two sides are now searching for a place to sign an agreement, with many experts naming London as the potential destination in December.
All the positive developments contributed to the yuan exiting from the 7 territory for the first time since August.
The USD/CNY currency pair rose 0.15% to 6.9889, from an opening of 6.9784, at 12:25 GMT on Friday. The EUR/CNY was unchanged at 7.7119.

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