China's yuan ticks up against dollar as trade tensions ease

SHANGHAI, Sept 22 (Reuters) - The yuan firmed slightly against the dollar on Monday, underpinned by easing Sino-U.S. trade tensions and on China's decision to keep its benchmark lending rates unchanged even as the Federal Reserve cut rates for the first time this year.

Analysts expect the dollar to decline further in the long run after the U.S. kicked off the fresh rate-cutting cycle last week, boding well for the yuan, which is also drawing support from a bullish stock market.

The yuan CNY=CFXS changed hands at 7.1138 per dollar at midday, slightly stronger than the previous close.

It hit the strongest level against the U.S. currency in 10 months last week, before the dollar index .DXY staged a rebound.

In a note to clients, China Merchants Securities said the yuan's value is somewhat related to the Sino-U.S. trade talks, and "may fluctuate around the current level before the next concrete progress in the negotiation."

U.S. President Donald Trump said he and Chinese President Xi Jinping made progress on a TikTok agreement and would meet face-to-face in six weeks in South Korea to discuss trade, illicit drugs and Russia's war in Ukraine.

Moreover, the dollar's rebound after the U.S. rate cut means "the yuan's passive strengthening lacks momentum," the brokerage said.

Traders will also look for policy cues from a Monday afternoon press conference where Chinese financial regulators, including central bank governor Pan Gongsheng, will make speeches.

Huatai Futures said in a report that the yuan will benefit in the long run from China's improving economic fundamentals, narrowing yield discount with the U.S., and decreased trade uncertainty.

On Monday, China kept its benchmark lending rates unchanged for the fourth consecutive month, as expected, following the central bank's decision to hold its main policy rate steady last week despite the Federal Reserve's rate cut.

The restart of interest rate cuts by the Fed means "the U.S. dollar will continue to be under downward pressure", Orient Futures analysts wrote.

Goldman Sachs economists forecast the yuan to hit 6.9 per dollar in the next 12 months, representing a 3% appreciation from the current level.