China's yuan touched a one-week high against the dollar on Friday and looked set for its third straight weekly gain after US President Joe Biden and his Chinese counterpart Xi Jinping discussed the need to manage competition between their countries and avoid conflict.
Relations between Washington and Beijing have been at their lowest point in decades and it was only the second call between the leaders since Biden took office in January.
The conversation focused on economic issues, climate change and Covid-19, a senior US official said.
"Signs of willingness to nudge bilateral conversations onto a more serious path could be a net positive for regional risk assets, but spillovers to sentiments could be constrained without more discernible translation to policy changes," analysts at Maybank said in a note. Prior to the market opening, the People's Bank of China set the midpoint rate at 6.4566 per dollar, 49 pips or 0.08% firmer than the previous fix of 6.4615.
In the spot market, the onshore yuan opened at 6.4552 per dollar and was changing hands at 6.4472 at midday, 88 pips firmer than the previous late session close. If the yuan finishes the late night session at the midday level, it would have gained 0.18% to the dollar for the week, booking the third straight winning week in a row.
While Chinese markets have grown somewhat used to strained Sino-US ties over trade and a host of other issues over the past few years, news of the leaders' phone call supported sentiment.
"Overall it is a good sign," said a trader at a Chinese bank. However, some market participants also noted that a breach of the psychologically important 6.45 per dollar level has triggered dollar demand from both corporate clients and banks' proprietary accounts to limit the gains in the yuan.
Markets are now awaiting China's August credit and activity data in the coming week for more clues on the health of the economy. While exports beat analysts' forecasts and lending is seen rebounding, industrial output and retail sales growth are expected to weaken further, adding to the debate over whether more stimulus is needed. In global markets, the dollar headed for its first winning week in three, after rebounding from a payrolls-induced sell-off, as investors continued to ponder the timing of a tapering of Federal Reserve stimulus.
By midday, the global dollar index fell to 92.486 from the previous close of 92.532, while the offshore yuan was trading at 6.4418 per dollar.