Renminbi jumps by most in over four years as China returns to work

China’s currency jumped by the most in four and a half years as trading resumed after a long holiday, boosted by the country’s accelerating economic recovery and rising odds of a Joe Biden presidency in the US.

The onshore exchange rate for the renminbi, which has not traded since September 30 due to the lengthy National Day holiday, rose by as much as 1.2 per cent in morning trading on Friday to Rmb6.7091 per dollar. That is the currency’s biggest intraday rise since February 2016.

The offshore renminbi, which traded throughout the recent holiday and whose value is more loosely regulated, climbed 0.6 per cent to Rmb6.6997 against the greenback.

Traders on Friday took their cues from signs that the world’s second-biggest economy is recovering after it controlled the spread of coronavirus.

On Friday, the Caixin China General Services purchasing managers’ index — an independent measure of China’s services sector — showed activity climbed to its highest level in three months in September.

Larry Hu, chief China economist at Macquarie, pointed to rising retail sales and a “significant” 17 per cent year-on-year jump in domestic passenger traffic at Shanghai’s airport during the long holiday. “It’s clear that consumption, especially service consumption, is on the mend,” he added.

Analysts at Nomura said that while overall passenger trips on public transportation were down about 30 per cent year on year in the first few days of the holiday, transport ministry data showed average highway traffic volume fell only 5.5 per cent.

China’s improving economy stands in contrast to the US, where authorities are still battling to contain the spread of Covid-19 and President Donald Trump was a week ago diagnosed with the disease. America’s economic recovery has also been hampered by wrangling in Washington over new a fiscal support package.

Rising odds of a win for Democratic candidate Joe Biden in next month’s US presidential election had helped to lift the Chinese currency, said Daniel Been, head of foreign exchange strategy at ANZ.

“The view in the market is that the way a Biden administration approaches [US-China relations] is probably going to be less confrontational and certainly using trade less as a tool or weapon against China,” Mr Been said.

Christy Tan, head of Asia markets strategy and research at National Australia Bank, said there was also growing confidence that Chinese authorities would not intervene to stymie the renminbi’s rally.

“The prospect of renminbi appreciation is getting more structural — it’s no longer just cyclical,” Ms Tan added, pointing to greater trading offshore and inflows from global investors into China’s markets. “There’s a sense of confidence that the renminbi is getting more internationalised.”

In equities, China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks climbed 2 per cent as onshore markets opened for the first time in six trading days. Shenzhen’s technology-focused ChiNext index rose 3.5 per cent.

Flows into China’s onshore equities market have topped Rmb90bn ($13.4bn) this year, taking foreign holdings to more than Rmb1tn on the back of the country’s relatively strong economic recovery.

“We expect foreign capital inflows and foreign holdings in the A-share market to continue to rise,” said Bruce Pang, head of macro and strategy research at investment bank China Renaissance, referring to the country’s onshore stock market.

Xiangrong Yu, senior China economist at Citigroup, added that strong retail sales during the country’s Golden Week holiday “bodes well” for the economy for the rest of the year.

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