The offshore renminbi has made optimistic gains against the US dollar over the past few days, rising above the 7.2 mark for the first time since November, the South China Morning Post reports.
The currency’s strengthening was largely driven by expectations that China and the US are on the cusp of trade talks, according to senior China economist at the Economist Intelligence Unit Xu Tianchen. “We can reasonably expect the two countries to dial down some of their tariffs against each other, as they are egregious and unsustainable,” he told the Post.
In early April, claiming that the country treated the US unfairly in trade matters, US President Donald Trump launched a tariff war with China that has had immense repercussions for global supply chains and investor confidence in the US market – prompting some to look elsewhere for stability. However, on Friday, Trump acknowledged that he would consider lowering the historically high duties of up to 145 percent he recently imposed on most Chinese imports.
[See more: California’s governor pushes for continued China trade despite Trump’s tariffs]
The evolving situation between the two superpowers has seen tentative interest rise in Chinese assets, after an initial period of depreciation. During the first weeks of April, the onshore yuan hit a 17-year low while the offshore yuan plunged to a record low of 7.4290.
Xu noted that more exchange rate fluctuations could be expected, however. “Any [trade] negotiations will be quite lengthy and full of uncertainties, bringing volatility to the exchange rate in the process,” he said.
A strengthening yuan is good news for Beijing’s drive to internationalise its currency. At a recent seminar on yuan internationalisation, the vice general manager of China’s Bank of Communications described the US’ weaponising of tariffs as having “shaken the greenback’s global status,” Reuters reported. “That, in turn, has made yuan assets more attractive, and will help broaden cross-border use of the Chinese currency.”
