CHINA FIXES CURRENCY AT 3-YEAR HIGH AHEAD OF TRUMP-XI MEETING

China fixes currency at 3-year high ahead of Trump-Xi meeting

Data shows deflationary pressures are easing in world’s second-largest economy

William Sandlund in Hong Kong and Thomas Hale in Shanghai

Analysts said China’s central bank had set the level against the dollar at a weaker level than expected © Roberto Hunger/Dreamstime

China’s renminbi strengthened to a three-year high against the dollar as authorities signalled tolerance for an appreciating currency ahead of a meeting this week between Chinese President Xi Jinping and US President Donald Trump.

The People’s Bank of China on Monday set the daily fixing around which the renminbi trades against the dollar at Rmb6.8467, its strongest level since March 2023.

The onshore renminbi traded as strong as Rmb6.795 a dollar, breaking past Rmb6.8 for the first time since February 2023.

Despite the moves in the spot market, analysts noted that the central bank set the fixing at a weaker level than expected, indicating Beijing was pushing back against speculative bets on the currency appreciating ahead of the Trump-Xi meeting.

“What we see ahead of key meetings is China tends to keep the currency relatively stable to strengthening slightly,” said Mitul Kotecha, head of foreign exchange and emerging markets macro strategy at Barclays. 

“They’re pushing back against the pace of appreciation but they’re relatively comfortable with the direction.”

China’s currency sits at the heart of trade tensions with the west. 

Europe and the US argue that China’s swelling trade surplus is in part due to its currency being kept artificially weak.

Last year, the renminbi fell almost 8 per cent against the euro, helping to fuel record Chinese exports into the EU that are stoking fears of a second “China shock”.

In a recent note, Goldman Sachs wrote that optimism around the exchange rate had been boosted by hopes that the meeting between Trump and Xi would go well, but noted there were fundamental economic forces driving the shift.

“China’s external surplus is approaching unprecedented levels as a [percentage] of global GDP, reflecting deep levels of export competitiveness, and also a highly undervalued currency, with currency appreciation an equilibrium outcome of those forces,” analysts wrote in a note last week.

Goldman estimates the renminbi is undervalued by about 20 per cent and would continue to appreciate against the dollar.

Years of deflation in China have only added to concerns that the renminbi is undervalued. 

However, official data on Monday brought further signs of a shift away from the deflationary pressures that have gripped the world’s second-largest economy.

China’s consumer price index rose 1.2 per cent in April, close to the three-year highs seen in February and above analyst expectations, while producer prices added 2.8 per cent.

China’s producer price index, a gauge of factory-gate prices, returned to growth in March for the first time since 2022 as the impact of the Iran war rippled across global supply chains.

Data for April showed that prices in the oil and gas extraction industry were up 18.5 per cent month on month. 

Prices in the fuel processing and chemical manufacturing sectors also rose.

Additional reporting by Haohsiang Ko in Hong Kong