China's Yuan Rallies, Posting Biggest Two-Day Gain in a Decade

(Bloomberg) -- From the lowest in a decade to the biggest two-day gain -- in the same timespan.

It's been a wild ride this week for China's yuan, whipsawed as concern about a slowdown in the world's second-biggest economy gave way to optimism that trade tension with the U.S. may ease. The onshore currency closed Friday at 6.8870 per dollar, a two-day gain of more than 1.2 percent as it inched away from the key psychological level of 7 against the greenback.

The reprieve came after Bloomberg reported that Donald Trump wants to reach an agreement on trade with Xi Jinping at the Group of 20 nations summit in Argentina later this month, and has asked key officials to start drafting potential terms. The two leaders had a telephone call on Thursday that Trump described as “long and very good,” and said in a tweet that discussions on trade were “moving along nicely." The U.S. and Chinese presidents will "certainly" meet at the G-20 summit in Argentina, White House trade adviser Peter Navarro said Friday.

Read more about the possible trade deal here.

Even as the news spurred broad gains in emerging currencies and stocks, with Hong Kong's Hang Seng Index soaring by the most since 2011, some analysts sounded a note of caution.

“It is uncertain as to whether the yuan gain can be sustained," said Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. in Singapore. "Some actual follow-through on a deal is needed to sustain the yuan's gain. We tend to be more cautious given past false hope."

Read: The Risks When China's Markets Start to Price in a Trade Deal

The yuan has been under intense pressure of late, as slowing growth in China and simmering trade tensions prompted investors to shift away from riskier emerging-market assets. The depreciation has already led to a pickup in capital outflows, with Chinese demand for foreign-exchange surging the most since 2016 in September.

--With assistance from George Lei.

To contact the reporter on this story: Tian Chen in Hong Kong at tchen259@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Andrew Janes, Ven Ram

©2018 Bloomberg L.P.