Chinese yuan soars to 5-month high ahead of U.S.-China trade deal signing

Look out, here comes the Chinese yuan.

The currency on Monday extended a rally in offshore trade USDCNH, -0.4585%  after news reportssaid the U.S. Treasury Department could move ahead of the planned Wednesday signing of a so-called phase-one U.S.-China trade deal to remove its designation of Beijing as a currency manipulator.

Sr Administration Official tells me Foreign Exchange report is expected to come out before China signs Phase One trade deal. Source in #China tells me today the Chinese will be removed as a currency manipulator in the report. Chinese trade sources wanted off to sign #trade deal.

— Edward Lawrence (@EdwardLawrence) January 13, 2020

The U.S. dollar bought 6.886 yuan in offshore trade around midday New York time on Monday, a fall of 0.4%. In onshore trade USDCNY, -0.3757%, the yuan traded at less than 6.9 yuan for the first time since late August. While the potential lifting of the manipulator tag probably isn’t hurting, Monday’s gains are a continuation of a rally that’s seen the yuan rebound from last summer’s bout of weakness.

“While markets were firmly focused on Middle East tensions, the Chinese yuan quietly strengthened below its uptrend that developed alongside the trade war, ahead of phase one’s signing expected on Jan. 15,” wrote Julian Emanuel, chief equity and derivatives strategist at BTIG, in a Monday note.

“Could we see upside surprises out of China? Stabilizing manufacturing, fiscal and monetary stimulus, and a rotation toward offense all help — Chinese mall caps seem to be taking note,” he said.

Indeed, the iShares MSCI China Small-cap exchange-traded fund ECNS, +1.94%  is up around 4.5% less than two weeks into the new year, while Chinese stocks overall have also rallied. The Shanghai Composite Index SHCOMP, +0.75%  is up 3.2%.

The manipulator designation came in August,

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