China's currency hits 29-month high as Biden projected to win White House
A Biden win is 'positive for the Chinese yuan, since he is less likely to use tariffs'
The Chinese yuan reached a greater than two-year high against the U.S. dollar as traders priced in the prospects of a Joe Biden victory and the stalemate caused by a potentially divided Congress.
The offshore Chinese yuan on Monday strengthened as much as 0.4% to 6.5641 per dollar, reaching a level last seen in June 2018. The currency had rallied 8.3% from May 27 through Friday as the Chinese economy bounced back from its COVID-19-induced slowdown.
A Biden win is “positive for the Chinese yuan, since he is less likely to use tariffs as a policy tool,” wrote Solita Marcelli, chief investment officer Americas, at Zurich-based lender UBS.
Biden has been projected as the winner of the 2020 election, although the results have not yet been certified. President Trump claims he won the election if every legal vote is counted, and has filed lawsuits in several states alleging irregularities.
President-elect Biden is expected to review the tariffs on $375 billion of Chinese goods that were enacted by the Trump administration. Biden has said he would put pressure on Beijing by forming a united front with the international community, a sharp contrast from Trump’s trade war.
The U.S. and China reached a trade-war cease-fire in January after the two sides signed a partial deal that included promises from Beijing to buy an extra $200 billion of American goods over the next two years, in addition to committing to end intellectual property theft and currency manipulation, among other measures.
The pleasantries between the two sides didn’t last long, as Trump accused Beijing of being slow to respond to the COVID-19 outbreak, which originated in Wuhan, China. The virus has infected more than 10 million Americans and killed at least 237,700 while spiraling the U.S. economy into its sharpest slowdown of the post-World War II era.
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“As markets move beyond a sharp pricing-in of clarity on the election outcome, they will then need to grapple with more complex medium-run questions, including gaining more clarity on the stances of policymakers in both China and the US,” wrote a Goldman Sachs research team led by Zach Pandl, co-head of global foreign exchange, rates and emerging markets strategy. They see the yuan reaching 6.30 per dollar over the next 12 months.