China’s currency, the yuan, has maintained stable growth momentum in both offshore and onshore markets this year, with analysts saying a weakened US dollar supported the rally.
The People’s Bank of China set the yuan’s midpoint at 6.6102 per dollar prior to market opening, the strongest level since Aug 17, 2016.
The midpoint on Aug 30 was 191 pips or 0.29 percent firmer than the previous fix of 6.6293.
In the spot market, the onshore yuan rose for the fourth straight day. It opened at 6.5980 per dollar and was changing hands at 6.5818 by midday, 138 pips firmer than the previous session close.
The offshore counterpart also strengthened in morning trade, which spots at 6.5859 per dollar as of midday.
The yuan is the best performing Asian currency this month. It gained around 1.8 percent in August and five percent year-to-date.
The currency has shown no signs of slowing down but some analysts wonder if the rally can be sustained.
“The yuan has gained five percent against the US dollar since this year, strengthening to near 6.6 level. I think the exchange rate trend reflects fundamentals improving,” said Liu Bing, a researcher at Bank of China Institute of International Finance.
The US dollar slipped to a 15-month low against other major currencies this week after Federal Reserve Chair Janet Yellen did not mention monetary policy at a central bankers’ summit.
In July alone, the dollar index, which measures the greenback against six major peers, went down 2.89 percent, resulting in the appreciation of non-US dollar currencies, including the Chinese yuan.
“We see more institutional investors are holding the yuan for a longer period of time, and they are not willing to sell their positions in the short term. That means the market expectations for the yuan have changed. Investors also closed some of their short positions in the dollar index. That also supported the yuan,” said Wang Youxin, a researcher at the Bank of China Institute of International Finance.
More than two years after China changed its “central parity system” to let the market play a bigger role in exchange rate formation, China’s currency stands tall against the US dollar with stabilized market expectations.
With the country’s fundamentals improving, analysts expect the yuan to advance more against the US dollar over the coming months.