THE Chinese currency extended a recent advance to levels unseen in more than a year, as traders mulled signs of corporate buying amid broad US dollar weakness.
The offshore yuan gained 0.3 per cent to 7.0752 per US dollar, its strongest since June 2023.
In August, the currency has surged around 2 per cent to erase its losses for the year. In 2024, it is now up about 0.7 per cent against the greenback.
The yuan, alongside its Asian peers, has benefited from rising expectations of an interest rate cut by the US Federal Reserve. This has prompted traders to sell the US dollar and buy local currencies.
This comes as Chinese exporters sit on a hoard of foreign exchange. Speculation has mounted that they will look to sell more US dollars amid the shift in sentiment.
The Chinese currency was boosted by the unwinding of a popular strategy that involved traders borrowing the yuan cheaply, and selling it against a higher-yielding exchange rate.
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“With a turnaround of bearish yuan sentiment, the recent stimulus measures should pose stronger support on China’s growth prospect,” said Ken Cheung, Mizuho Bank’s chief Asian foreign exchange strategist.
“If significant yuan appreciation materialises, it could prompt exporters to covert foreign exchange back into the yuan and push the currency to even stronger levels.”
Still, the yuan will continue to face pressure from sluggish growth, as consumer spending slows and Chinese President Xi Jinping’s government avoids major stimulus.
Wary of the impact on the country’s exporters, traders are also monitoring whether the People’s Bank of China (PBOC) will push back on the managed currency’s strength.
Traders – who asked not to be identified commenting on the foreign exchange market – said state-owned banks bought the US dollar at around 7.091, limiting appreciation in the yuan.
The onshore yuan edged higher after the PBOC on Friday (Aug 30) raised its daily reference rate to a two-month high of 7.1124.
“Further rally will be slower and more volatile, given spot is already trading below fixing,” said Becky Liu, head of China macro strategy at Standard Chartered Bank.
“We think dollar-yuan will be lower by the year end, at 7 to 7.1.” BLOOMBERG
