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China's yuan closes domestic session at 28-month high on Biden presidency

(Updates closing prices, adds details and analyst comments)

SHANGHAI, Nov 9 (Reuters) - The yuan closed domestic trading at a more than 28-month high against a softer dollar on Monday, as investors welcomed Joe Biden’s election as U.S. president and sentiment improved on hopes that a calmer White House could boost world commerce.

Investors believed that a Biden presidency could mean less uncertainty in foreign and trade policy towards China and expected that he was unlikely to re-open the trade war, which has weighed on the Chinese yuan over the last two years.

Onshore spot yuan opened at 6.5950 per dollar and finished domestic trading session at 6.5728, the strongest such close since June 26, 2018.

Chinese state media also struck an optimistic tone in editorials on Monday reacting to the Democratic candidate’s victory, saying relations could be restored to a state of greater predictability and could start with trade.

“We think RMB has priced in the pause of the escalation of U.S.-China trade war,” Tommy Xie, head of Greater China research at OCBC Bank in Singapore, said in a note.

“The near-term outlook of the currency may depend on the global risk sentiment as well as broad dollar trajectory.”

Optimism over Biden’s potential different approach to China has prompted some investment banks to revise up their forecast for the Chinese yuan.

“Overall, the potential for a Mr. 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, FX-unhedged on a tactical basis,” Goldman Sachs said in a note, refreshing its 12-month target for yuan to 6.30 per dollar.

However, several currency traders said the market refrained from testing new highs in the yuan after hitting the loftiest level in 28 months in initial trade.

“Many have adopted a wait-and-see strategy,” said a trader at a Chinese bank, saying investors were waiting for more clarity on Biden’s policies before making further bets on the yuan.

A second trader at a Chinese bank said investors were also cautious as the authorities might not tolerate such rapid gains in the yuan.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint at a 28-month high of 6.6123 per dollar, firmer than the previous fix of 6.6290.

Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong and Sherry Jacob-Phillips