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Chinese Yuan Gains on Trade Talk Momentum, Trade Data

February 18, 2019 at 19:24 by Andrew Moran

Three CNY100 bills of 2005The Chinese yuan is gaining against major currency rivals on Monday as it is being supported by US-China trade talk momentum and better-than-expected January trade data. The yuan’s ascent was capped on disappointing auto sales figures and future industry projections.

Last week, an American delegation was in Beijing for US-China trade deliberations. Both sides failed to reach a new trade agreement, but investors are cheering on reports that the discussions were mostly positive. With the March 1 deadline looming, both sides are willing to carry on negotiating for a new trade pact.

President Donald Trump also told reporters on Friday that he is willing to extend the trade truce deadline in order to avoid raising tariffs on $200 billion worth of Chinese goods from 10% to 25%.

The short-term performance of the yuan might depend on the forthcoming talks, and this week’s meetings might be crucial for the currency. Although President Trump has confirmed he is not scheduled to meet with his Chinese counterpart, President Xi Jinping, his team led by US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin seems to be getting the job done.

On the data front, January trade improved from previous months and beat median estimates.

The country’s dollar-denominated exports surged 9.1% in January from the same time a year ago, which is better than the market forecast of a 3.2% decline. Chinese imports slipped 1.5%, beating market projections of a 10% slide. Overall, China’s trade surplus of $39.16 billion last month beat all polls of economists.

The auto industry in the world’s second-largest economy is continuing to head off the road, reports the China Association of Automobile Manufacturers (CAAM), the nation’s top auto industry association. For the second consecutive month, auto sales tumbled 15.8% in January compared to a year ago as 2.37 million vehicles were sold. This comes as China recorded a 13% drop in December and a 14% decrease in November.

Xu Haidong, CAAM assistant secretary general, is already sounding the alarm about February’s numbers, blaming the cooling down economy.

Car sales in January continued to decline, and there was no sign of improvement. We estimate that February wholesales will also drop sharply.

The reason for the sales drop is still the slowing overall economy, and consumption decline in small- and medium-sized cities.

The USD/CNY currency pair dipped 0.09% to 6.7667, from an opening of 6.7731, at 18:04 GMT on Monday. The EUR/CNY fell 0.04% to 7.6542, from an opening of 7.6499.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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