The attention of financial markets has recently been focused on China. The unexpected strengthening of the offshore yuan against the US dollar has sparked a wave of optimism among investors, and Chinese stocks are showing positive dynamics. The main catalyst for these movements has been signs of a possible resumption of dialogue between Washington and Beijing on key trade issues. We are figuring out what lies behind these changes and how the potential rapprochement of the two largest economies in the world could impact global sentiment and markets.
On Friday, against the backdrop of these news, the offshore yuan (USD/CNY pair, reflecting the exchange rate of the dollar to the yuan outside mainland China) showed a significant decline, dropping to its lowest values in the last four weeks. The exchange rate reached about 7.26 yuan per dollar. This means that the yuan has strengthened against the US currency. Over the past month, the USD/CNY pair has lost 0.31%, indicating growing confidence in the Chinese currency, although over the past year, the yuan is still showing a gain against the dollar of 0.92%.
The main reason for this positive shift is the growing hopes of investors for a possible resumption of dialogue between the US and China on trade issues. According to reports from the Ministry of Commerce of China, US representatives have made numerous attempts in recent days to establish contact through various channels to discuss tariff issues. China has confirmed that it is considering the possibility of such negotiations against the backdrop of ongoing tensions.
However, Beijing has once again made its position extremely clear: for a serious dialogue to begin, Washington must 'correct its wrongful actions' by canceling all unilaterally imposed tariffs and ensuring equal treatment. Chinese officials emphasized that they appreciate the recent diplomatic efforts of the US, but for substantive negotiations to start, Washington must show 'sincerity'. The Ministry also warned that 'mixed signals' from the US could undermine mutual trust.
Let us recall that the tension in trade relations between the two countries significantly escalated during the Trump administration. At that time, the US imposed high tariffs on Chinese goods (up to 145% on certain categories), which prompted retaliatory measures from Beijing (up to 125%). These actions disrupted the balance in financial markets, negatively affected global supply chains, and exerted pressure on global economic growth. That is why any signs of a softening of rhetoric or steps towards dialogue are perceived by the markets with such optimism. The strengthening of the offshore yuan against the dollar is often seen as a direct indicator of improving sentiment towards the Chinese economy and trade prospects.
Amid these shifts in trade rhetoric, we also see positive signals in China's stock market. For example, shares of the major technology company Tencent Holdings reached a 4-week high, rising to 485.80 Hong Kong dollars. Despite a decline of 2.93% over the past month, Tencent shows an impressive growth of 32.6% over the year, indicating long-term investor confidence in the Chinese technology sector, despite macroeconomic challenges.
So, the current movements in China's currency and stock markets are closely related to the diplomatic activity between Beijing and Washington. Any signs of progress in trade relations are perceived by investors with optimism, fueling demand for Chinese assets, including the yuan. However, the path to a complete resolution of trade disputes is still long, and the markets will closely monitor every signal from both sides, remaining sensitive to any changes in this complex dialogue.