Possible Interim US-China Trade Deal Strengthens Yuan Ahead Of Talks

Chinese Yuan
Illustration photo of U.S. dollar and China yuan notes (Photo: Reuters / Thomas White)

The Chinese yuan surged on Thursday following reports of the possible signing of an interim currency pact between China and the United States. The pact is expected to be included in a reported small-scale trade deal between both nations during their scheduled meeting in Washington this week.

According to a report citing people close to the talks, the Trump administration is apparently considering the inclusion of a currency pact between both nations as part of an interim deal.

If successfully implemented, the deal itself could lead to the eventual suspension of the US' tariffs on Chinese imports, including the one scheduled to be imposed next week.

Analysts have speculated that the terms of the agreement on exchange rates could be very similar to the pact made by the US in the proposed United States-Mexico-Canada Agreement (USMCA). If this is true, then the agreement would include a section that restricts unwanted currency devaluations. It would also include a clause that increases the transparency of information sharing involving foreign exchange operations.

US officials had previously mentioned that the USMCA deal could be used by the country as a template in its future trade negotiations. The USMCA deal has yet to be completed and is currently set to be voted on by Congress.

Market analysts have stated that China will likely have no qualms in agreeing to such as deal as it had made similar commitments in the past. China previously signed a similar agreement with the G20 in 2013, an agreement that opposed competitive currency devaluations.

Driven by positive expectations of the upcoming talks, the Chinese yuan had surged by 0.8 percent on late Thursday to 7.1252 against the US dollar. This was a significant shift from earlier levels in September when the yuan hit its weakest level in 11 years.

China's trade delegation, which will be led by vice-premier Liu He, will be arriving in the US to meet with Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin. Both parties will be holding trade negotiations on Thursday and Friday, the first time both parties have met in US soil since the collapse of the talks in May.

Sources close to the talks have revealed that China will be looking to narrow down the scope of the discussions to seal an interim deal. The partial trade deal will reportedly involve China's commitment to purchase large amounts of agricultural products and energy in exchange for a postponement of the US' planned tariffs.

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