China's yuan hits 3-year high, stocks dip, as Trump-Xi summit begins

China's yuan edged up to a three-year high against the dollar on Thursday, while stock indexes dipped in early trade, as investors awaited a summit between the leaders of the world's two largest economies.

U.S. President Donald Trump headed into a series of meetings with China's Xi Jinping in Beijing on Thursday, aiming to secure economic wins, maintain a fragile trade truce and navigate thorny issues such as the Iran war.

"Beijing is adopting a wait-and-see mode, given the 'better than expected' first-quarter (economic) growth ... Beijing's focus for the summit is not on deliverables but on optics, aiming to project stability and predictability to both international and domestic audiences," said Larry Hu, chief China economist at Macquarie.

The Chinese currency, traded both onshore CNY=CFXS and offshore CNH=D3, touched its strongest levels since March 2023 after the central bank lifted its official guidance rate.

The People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.8401 per dollar, its strongest since March 24, 2023. However, the official fixing was 513 pips weaker than a Reuters' estimate CNY=RTRS of 6.7888, the largest deviation since March 2.

The central bank has been setting weaker-than-expected midpoints since November, a move that market participants believed was to prevent excess yuan gains and maintain currency stability.

The onshore yuan CNY=CFXS last fetched 6.7887 per dollar as of 0205 GMT, while its offshore counterpart CNH=D3 traded at 6.7871.

In equity markets, the benchmark Shanghai Composite index .SSEC slid 0.5%, while the blue-chip CSI300 Index .CSI300 lost 0.6%.

Investors largely expect Trump and Xi to keep trade tensions on the backburner during their talks and say they are focused on the booming AI sector and whether the U.S. will relax chip export restrictions.

The CSI Artificial Intelligence index .CSI930713 outperformed the market and rose about 0.8%, while the CSI cloud computing 50 index .CSI931469 advanced 1.5%.

The U.S. and China are expected to inch toward a managed trade mechanism for non-sensitive goods this week, with each side possibly identifying some $30 billion worth of goods on which they could reduce tariffs and sell to each other without crossing national security red lines.

-Shanghai Newsroom/Reuters