(31JANUARY 2019)DAILY MARKET BRIEF 2:Optimism on US-China talks boost yuan
USD/CNY dropped 2.20% since the beginning of the year on US-China trade optimism, USD softness and China’s manufacturing rebound. However, the USD/CNY could rapidly turn north, as a trade deal with the US, China’s by far largest trade partner, would significantly reduce its trade surplus. USD/CNY is currently trading at 6.71, approaching 6.70 short-term.
A Chinese delegation led by Vice Premier Liu He and US trade representative Robert Lighthizer are looking for a trade resolution in a record period. Time is running short, as there are only 28 days to go before the implementation of customs tariffs, while issues of market access, intellectual property and China-owned companies’ subsidies remain unsolved. Markets’ hopes are rising with the recent arrival of People’s Bank of China Governor Yi Gang, who oversees financial institutions, which implies that talks are becoming more concrete on China’s financial market liberalization. A recent approval made by Chinese authorities to grant access to US company Standard & Poor’s rating agency to assess China’s bond market, the first authorized foreign credit agency to operate in the country, is a leap forward. Trade talks are focusing on China’s structural reforms and a timeline, a “soft resolution”, rather than a quick solution.
