Yuan Advances to Strongest Level in Two Years, More Gains Seen

(Bloomberg) -- China’s yuan climbed to its strongest since December 2015 on Monday, and analysts predict further upside given weakness in the dollar.

The onshore yuan rose as much as 0.81 percent to 6.4138 per dollar, after the People’s Bank of China strengthened the daily reference rate the most in three months and as the Bloomberg Dollar Spot Index fell for a fourth day. China’s currency was up 0.48 percent at 5:22 p.m. in Shanghai.

“The recent advance is unsurprising compared with other Asian currencies and dollar weakness,” said Gao Qi, Singapore-based foreign-exchange strategist at Scotiabank. “Technically some correction may be needed for a further advance, but a widening trade surplus with the U.S. and the weakness in the dollar should continue to offer support.”

China’s trade surplus with the U.S. rose 13 percent to 1.87 trillion yuan ($291 billion) in 2017, customs spokesman Huang Songping said at a briefing Friday. Bloomberg’s dollar index slid 0.43 percent on Monday, taking its loss over four days to 1.8 percent.

Yuan Advances to Strongest Level in Two Years, More Gains Seen

The central bank was said to have recently removed the so-called counter-cyclical factor used in setting the yuan’s daily reference rate, which some have interpreted as a sign it’s comfortable letting the market play a bigger role in the exchange rate. Gao said the yuan’s gains may be “fairly big” following the move.

A Bloomberg replica of the CFETS RMB Index rose 0.16 percent to 94.91 on Monday. “The key level to watch is the RMB Index above the 95 level, which is where the authorities would look to slow down the pace of appreciation,” said Khoon Goh, Singapore-based head of Asia research at Australia & New Zealand Banking Group Ltd.

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