China's Yuan Greets President-Elect Joe Biden, Jumps To 29-Month High

China’s yuan surged to its highest in more than two years against the U.S. dollar on Monday as a Joe Biden victory in the White House made investors hopeful of less strained the U.S.-China trade relations and a weaker dollar.

The offshore yuan rose 0.6% to 6.5641 per dollar on Monday, a level last seen in early 2018, before President Donald Trump began his crackdown on China. The yuan has strengthened for the fifth month straight, rallying as much as 8.3% from May 27 through Nov. 6, according to a report.

Biden is “less likely to use tariffs as a policy tool”, Solita Marcelli, chief investment officer at UBS, is quoted in the report.

Reports have suggested that China has reason to worry even if Biden is head of the government as he has acknowledged the threat China poses to U.S. national security and economy. He has said he will pressure China with help from the international community, and he would force them to “play by the international rules”.

However, it is expected that President-elect Joe Biden will review the tariffs on $375 billion of Chinese goods that President Trump had imposed, which started a tit-for-tat trade war in 2018 between the two biggest economies in the world. Investors also hope for clearer foreign policy from the U.S. toward China with Biden as president.

The Chinese economy is bouncing back from the impact of the coronavirus. It was reported that while its trade partners struggled, China’s exports were at a 19-month high in October. When the elections were undecided, Chinese markets had spiraled and the yuan had seen its steepest single-day fall of 1.4% briefly on Wednesday. This fall coincided with periods when Donald Trump was ahead in the race and in battleground states.

Major investment banks, including Goldman Sachs, Citi and Morgan Stanley, have predicted the yuan touching new highs in the year, with Goldman predicting a 4% increase in the yuan value in the coming 12 months, Reuters reported.

“Overall, the potential for a Biden victory to ease tensions in U.S.-China relations, as well as less upward pressure core yields relative to a ‘blue wave’ scenario of U.S. fiscal spending reinforces our conviction to stay long three-year China government bonds,” Goldman Sachs said in a note.