China's yuan hits 3-1/2-year high as PBOC extends fixing streak ahead of Xi-Trump meeting

SHANGHAI: China's yuan climbed to a 3-1/2-year high against the dollar on Tuesday after the central bank set a firmer daily fixing for the 10th straight session, the longest streak since late 2023, while investors awaited a meeting between the leaders of the world's two largest economies later this week.

US Treasury Secretary Scott Bessent offered positive comments about the US-China trade relationship ahead of Chinese President Xi Jinping's state visit to the US from Sept 23 to 25 at the invitation of President Donald Trump.

While thorny issues like Taiwan may surface, the main focus of their Sept 24 meeting is whether the leaders will signal an extension to a trade truce struck last year that averted a major shock to the global economy.

Senior US and Chinese officials will meet again in about two months in Shenzhen, China, to discuss artificial intelligence dangers and communications protocols in the event of AI safety incidents, Bessent said on Monday.

Prior to the market opening, the People's Bank of China set the midpoint rate at 6.7459 per dollar, its strongest since Feb 3, 2023, but 470 pips weaker than a Reuters' estimate of 6.6989.

The spot yuan is allowed to trade two per cent either side of the fixed midpoint each day. "Ahead of an important Xi-Trump summit, the recent string of stronger fixes could be a show of goodwill and also serves as an anchor for regional currencies in a somewhat volatile environment." Maybank analysts said in a note. "The recent dollar rebound also provides a window for the spot-fix gap to narrow."

In the spot market, the onshore yuan advanced to a high of 6.6936 per dollar at one point, the strongest level since January 2023, before changing hands at 6.6969 as of 0302 GMT. Its offshore counterpart last fetched 6.6965 per dollar.

"The firmer fixing bias is notable given the broader USD/rates backdrop and reinforces the recent shift in fixing guidance towards allowing a somewhat firmer RMB," said Christopher Wong, FX strategist at OCBC Bank.

"This also comes ahead of the Trump-Xi meeting, where we see room for RMB to stay supported into the event." China's yuan has gained about 4.4 per cent against the dollar this year, making it one of Asia's best-performing currencies, supported by resilient exports.

With the yield gap between China and the United States hovering near a record high, some investors expect further yuan appreciation to be more gradual.

"Beyond the meeting, wide US-China yield differentials and soft domestic fundamentals should still limit the pace of RMB appreciation," OCBC's Wong said.