A series of political developments launched China’s yuan to its highest level since April 2019 as the value U.S. dollar shrank on Tuesday.
The offshore yuan reached 6.7136 per U.S. dollar, even as the onshore yuan foreign exchange market was closed due to China’s Golden Week holiday.
New polling on Tuesday suggested that President Donald Trump could lose the race for the White House, which propelled the value of the yuan.
Democratic presidential nominee Joe Biden increased his lead over Trump to 16 points in a new CNN poll.
The election for U.S. President is 28 days away.
While the former vice president would still put economic pressure on China, he would likely not be as tough as Trump. Biden has lambasted Trump’s trade policies, including his use of tariffs.
China pledged that it would not devalue its currency as part of the phase one trade deal signed in January. A thawing of trade tensions between Washington and Beijing would benefit China’s currency.
Ken Cheung Kin-tai, the chief Asian currency strategist at Mizuho Bank, told the South China Morning Post that a Biden victory would be good for the yuan.
A massive Biden lead also diminishes the likelihood of a contested election, which soothes fears over election-induced market volatlity. It also increases the chances of a so-called “blue tsunami” in which Democrats would take control of both houses of Congress. Analysts overhwhemingly view such unfettered Democratic control as good for the markets as it would increase the likelihood of increased stiumuls. Renewed talks between Democratic and Republican leaders regarding stimulus continued on Tuesday.
While the injection of financial stimulus would lift stocks, it would also undermine the U.S. dollar. This is another reason why the dollar fell a bit on Tuesday.
Additionally, investors are more bullish in the yuan due to China’s perceived recovery from the pandemic.