Renminbi jumps by most in over two years as China returns to work
Markets buoyed after long break by economic recovery and possible Biden US election win
China’s currency jumped by the most in two and a half years while the country’s onshore stocks gained on positivity over the world’s second-biggest economy as traders returned from a lengthy holiday.
The onshore exchange rate for the renminbi, which has not traded since September 30 due to the long National Day holiday, rose by as much as 1.2 per cent in morning trading on Friday to Rmb6.7119 per dollar. That is the currency’s biggest intraday rise since March 2018.
The offshore renminbi, which trades more freely than its onshore counterpart, climbed 0.5 per cent to Rmb6.7044.
Strength in China’s currency has been supported by positivity surrounding the recovery of the nation’s economy following coronavirus. It got a further boost on Friday after an independent measure of China’s services sector — the Caixin China General Services purchasing managers’ index — showed activity climbed to its highest level in three months in September.
The improving economic outlook and rising odds of a win for Democratic candidate Joe Biden in next month’s US presidential election have helped to lift the Chinese currency, said Daniel Been, head of foreign exchange strategy at ANZ.
“The view in the market is that the way a Biden administration approaches [US-China relations] is probably going to be less confrontational and certainly using trade less as a tool or weapon against China,” Mr Been said.
Christy Tan, head of Asia markets strategy and research at National Australia Bank, said there was growing confidence that Chinese authorities would not intervene to stymie the renminbi’s rally.
“The prospect of renminbi appreciation is getting more structural — it’s no longer just cyclical,” Ms Tan added, pointing to greater trading offshore and inflows from global investors into China’s markets. “There’s a sense of confidence that the renminbi is getting more internationalised.”
In equities, China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks climbed 2.3 per cent as onshore markets opened for the first time in six trading days. Shenzhen’s technology-focused ChiNext index rose 4 per cent.
Flows into China’s onshore equities market have topped Rmb90bn ($13.4bn) this year, taking foreign holdings to more than Rmb1tn on the back of the country’s relatively strong economic recovery.
“We expect foreign capital inflows and foreign holdings in the A-share market to continue to rise,” said Bruce Pang, head of macro and strategy research at investment bank China Renaissance, referring to the country’s onshore stock market.
Xiangrong Yu, senior China economist at Citigroup, added that strong retail sales during the the country’s Golden Week holiday “bodes well” for the rest of the year.
The gains in Chinese stocks followed a decent showing on Wall Street, with the S&P 500 index rising 0.8 per cent and the tech-focused Nasdaq Composite up 0.5 per cent on Thursday. Strong polling for Mr Biden has boosted hopes that his administration could spend heavily on fiscal stimulus if he is elected next month.
S&P 500 futures edged 0.6 per cent higher in Asian trading on Friday, although volumes are often light during this time, adding to volatility.
Elsewhere in the region, Japan’s Topix index fell 0.6 per cent while Hong Kong’s Hang Seng rose 0.2 per cent.