Surging Offshore Yuan Heads for 7 After Breaching Key Level

(Bloomberg) -- China’s offshore yuan is on a tear, punching through a key level as it heads closer to 7 per dollar on building trade optimism.

The currency strengthened as much as 0.27% to 7.0227 per dollar on Monday, at one point breaking through its 100-day moving average for the first time since May -- when tweets by President Donald Trump sent the yuan plunging after threatening further tariffs.

The offshore yuan gained 1.4% in October as tensions between the two nations cooled.

A weaker greenback and rising expectations that Beijing and Washington will sign a “Phase One” trade deal have buoyed the yuan, which tumbled through the key psychological level of 7 in August when trade negotiations soured. Commerce Secretary Wilbur Ross said Sunday the nations were “making good progress” and an agreement -- Beijing wants the U.S. to do away with new import taxes due to take effect Dec. 15 -- could be signed this month.

The yuan has also inched higher as the People’s Bank of China has strengthened its daily reference rate for its currency for five consecutive days, the longest streak since February. The onshore yuan can trade 2% either side of the fixing. It rose 0.15% to 7.0268 on Monday.

Still, market watchers are cautious on the yuan’s recent strength. The currency can’t rise substantially unless existing tariffs on Chinese goods are reversed, according to Tommy Xie, an economist at Oversea-Chinese Banking Corp.

“The delay of new tariffs will help alleviate the pressure for the renminbi to weaken but it’s not enough to drive the currency higher significantly,” he said, referring to the official name of the currency.

To contact Bloomberg News staff for this story: Livia Yap in Shanghai at lyap14@bloomberg.net;David Ingles in Hong Kong at dingles@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Philip Glamann

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With assistance from Bloomberg