The dollar drifted toward a small weekly loss on Friday, while the Chinese yuan soared to a 17-month high, as investors wagered on a Joe Biden presidency and on more US stimulus spending.
The yuan’s leap, when China’s markets reopened after the mid-autumn break, was partly a catch-up since the offshore yuan has gained against a softening dollar during the week. But as it extended gains beyond 1 per cent, its biggest daily jump in nearly two years, traders said it provided one of the clearest indications yet that Mr Biden’s lead in the polls is driving bets on a steadier China-US relationship.
A stronger-than-expected setting of the yuan’s trading band also signalled that policymakers in China don’t mind its rise. The yuan was last up 1 per cent at 6.7218 per dollar in onshore trade and it rallied half a per cent to 6.7083 per dollar offshore.
The dollar eased 0.1 per cent against a basket of currencies and it is down 0.4 per cent for the week.
“I think the main message is that the [People's Bank of China] is allowing further renminbi appreciation at this level,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. “So markets are positioning for a renminbi rally.”
The prospect of a Mr Biden administration less inclined toward tariffs and trade disputes was another boost, he added.
“Polls are showing that Mr Biden is taking the lead ... it means the risks of resuming a new trade war are getting smaller, so I think this is positive for the renminbi.”
Reuters/Ipsos polling this week put Mr Biden, a Democrat, narrowly ahead of Republican President Donald Trump in five states – Wisconsin, Pennsylvania, Michigan, Florida and Arizona – that will play critical roles in deciding the victor.
A growing expectation that, whoever wins, US stimulus spending will flow has also been weakening the dollar in the short term, by improving investors’ mood and their willingness to buy riskier assets such as stocks and commodity currencies.
Talks have resumed between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin over coronavirus aid plans, two days after President Trump ended them, and investors reckon a Democratic administration would be eager to spend.
“The uncertainty is more around whether it will happen before the election and how big it will be,” said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney. “Investor confidence is growing that Mr Biden will win the presidential election by a clear margin, reducing the risk that President Trump disputes the result.”
The risk-sensitive Australian dollar rose 0.1 per cent on Friday to put it a fraction higher for the week, despite analysts interpreting a Tuesday central bank statement as a signal of monetary easing to come. The New Zealand dollar recouped Thursday losses made after another dovish signal from the Reserve Bank of New Zealand and was last up 0.3 per cent at $0.6602.
The safe-haven Japanese yen, which has been sold with the upbeat mood, was a tiny bit higher at 105.87 per dollar on Friday. It is down about 0.5 per cent this week.
The euro was up 0.1 per cent to $1.1773 and sterling crept higher to $1.2951 and has held firm this week as prospects for a Brexit deal have appeared to improve.
Elsewhere, a 10 per cent surge in oil prices this week, on optimism about stimulus and supply disruptions owing to a storm in the Gulf of Mexico and strike in Norway, has boosted oil-linked currencies.
The Canadian dollar is set for its best weekly rise in more than two months, adding 0.9 per cent to C$1.3185 per dollar. The Russian rouble has also gained about 1 per cent for the week.