The onshore yuan advanced to its strongest level since 2018 as it defied attempts by the central bank to slow its gains amid an improving outlook for China’s economy.
The currency rose as much as 0.3% to 6.4114 a dollar, the strongest since June 2018, after breaching its previous year-to-date high of 6.4245 reached in January. The move follows a slump in the greenback on Friday after U.S. jobs data missed economists’ estimates.
The yuan’s ascent comes even after the central bank tried to cap its gains by setting the daily fix at a weaker-than-expected level on Monday. China’s currency has climbed 1.8% this year to outperform all its Asian peers, and a rapid appreciation threatens to erode the competitiveness of the nation’s exports.
“The yuan will continue to strengthen, as apart from a weaker dollar, the Chinese currency is also being supported by capital inflows and large trade surplus,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “The PBOC will likely use the fixing to slow the gains but it won’t use direct intervention.”
The yuan’s rise mirrors the Chinese economy’s gains, where surging exports and retail sales are in stark contrast to the uneven recovery seen in the U.S. and the euro zone. Gross domestic product climbed 18.3% in the first quarter from a year earlier, powered by a jump in consumer spending.
Apart from the dollar, the yuan also strengthened against a basket of its trading partners’ currencies. The CFETS RMB Index, which tracks the yuan versus 24 peers, is close to the highest level since 2018.
Chinese banks, including joint-stock and state lenders, boosted purchases of the dollar after the yuan advanced rapidly on Monday afternoon, traders said. The transactions helped to stabilize the exchange rate, according to the traders, who asked not to be named as they aren’t authorized to comment on the market publicly.
“While the broad dollar declines are certainly supportive of Asian currencies, the yuan has become even more attractive because of its strong data and effective Covid-19 containment measures,” said Fiona Lim, senior currency analyst at Malayan Banking Berhad in Singapore. The onshore yuan will advance to 6.36 in the coming 12 months, she added.
