Yuan closes at strongest level against US dollar in over 14 months

But economists warn that the yuan may not appreciate at current level going forward

The yuan closed at the strongest level against the US dollar in over 14 months today, capping the largest monthly gain in more than a decade, after the central bank strengthened the official reference rate for the fourth consecutive day.

But, economists who attributed the stronger yuan to a weak US dollar and China's economic momentum, said the fast appreciation may not last in the near term.

The yuan closed at 6.5969 per US dollar in Shanghai today, slightly weaker than Wednesday's close of 6.5927.

But the closing figure was stronger than the central parity rate of 6.6010 set by the People's Bank of China, and it was strongest level since June last year.

The yuan can trade between two percent on either side of the central parity rate, which was set before the market opened.

Since the beginning of the month, the yuan has climbed 2 percent against the greenback, recording the largest monthly gain since July 2005.

Economists, however, cautioned that the yuan's quick rise may not last in the near term.

Jing Ulrich, managing director and vice chairman of J.P. Morgan Asia Pacific, said the yuan is likely to be stabilized in the coming months and will stay below 7 per US dollar within the next 12 months.

She attributed the recent appreciation to the weakening US dollar especially against the euro, improved profitability at Chinese companies along with domestic economic growth, the PBOC's effective measures to curb capital outflow, and overall strengthening of emerging market currencies.

“The yuan at the current level has greatly boosted foreign investors' confidence in yuan-denominated assets,” said Ulrich. “So far the currency is not too strong to hurt China's economy as the country has built strong competitiveness in manufacturing high technology products.”

She added the US dollar may bottom out in the fourth quarter and it's uncertain if the yuan will continue to appreciate at the current speed.

China’s manufacturing activity expanded in August at the second fastest pace this year on improved supply and domestic demand, according to latest economic data.

The official Purchasing Managers’ Index, which measures vitality in the manufacturing sector, rebounded to 51.7 in August from July’s 51.4, the National Bureau of Statistics said today.


PBoC

Movement of the central parity rate in August.