Yuan strength reveals market confidence in Chinese economy
The Chinese yuan strengthened against the greenback on Wednesday, extending gains to hit a 16-month high and notching the largest daily surge since April 8 this year.
The central parity rate of the yuan strengthened 397 pips to 6.7825 against the US dollar on Wednesday, according to the China Foreign Exchange Trade System. The yuan surged in onshore and offshore trading. The offshore yuan strengthened to its highest level in 16 months, rising more than 5 percent since the end of May.
Market optimism, building on the resilience and long-term prospects of the Chinese economy, has fueled the yuan’s rally over the months.
The country’s exports posted the first increase this year from January to August, adding to market confidence and fueling expectation of a stronger yuan, said Tu Yonghong, deputy chief of the International Monetary Institute of Renmin University of China.
A weak US dollar and a widening spread between the two economies’ interest rates have driven the yuan to appreciate, said Xu Gao, chief economist at Bank of China International.
China’s efforts in opening up its financial markets also made international investors upbeat about yuan-denominated assets, leading to support in strengthening the yuan.