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Yuan rises on report of possible use in Saudi crude sales

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(Bloomberg Opinion) — The Chinese yuan reversed earlier declines and rose to its highest for the day after the Dow Jones news agency reported that Saudi Arabia is in active talks with Beijing to price some of its crude oil sales to China in that currency.

The offshore yuan rose 0.1% to 6.3867 per dollar, near the session’s high it hit during Asian trading. The currency had weakened as much as 0.3% in US trading before the Saudi report.

Although the US dollar is the main currency of exchange in world trade, and in oil markets in particular, other currencies such as the renminbi, as the Chinese currency is also known, have been gaining ground in cross-border transactions.

The outbreak of the Ukraine war and the series of sanctions imposed on Russia as a consequence have brought to the fore the questions regarding alternatives to US currency-based markets, and the yuan is one of the currencies in which particular attention is paid in light of China’s relationship with Russia. Saudi Arabia’s relationship with the US, meanwhile, has been marred by a variety of issues ranging from Yemen’s civil war to potential negotiations over Iran’s nuclear program.

The yuan’s rise comes at a time when Chinese assets have generally come under some pressure. The renminbi has been under tremendous selling pressure in the past two days amid falling stocks in the country. The offshore yuan fell more than 1.1% against the dollar for the three days to March 14, its biggest decline in a year. The offshore yuan’s 200-day moving average of 6.4116 per dollar remains key short-term support for the currency.

The Dow Jones report does not indicate the likelihood of Saudi Arabia making this change or the amount of yuan sales if it does. However, he points out that the conversation around alternatives to the greenback is a very ongoing debate.

“Maybe it’s more of a sentiment boost for the potential for wider use of the renminbi,” said Sacha Tihanyi, director of emerging markets strategy at TD Securities in Toronto. “I see ‘some’ of their oil, so I’m not sure how relevant it is.”

original note:

Yuan jumps after report on Saudis weighing its use in oil deals

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