Yuan advances to strongest level in 2 years, more gains seen

Shanghai - 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% to 6.4138 per dollar, after the People’s Bank of China raised the daily reference rate the most in three months and as the Bloomberg Dollar Spot Index fell for the fourth day in a row.

China’s currency traded 0.67% stronger at 1:39pm 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 US and the weakness in the dollar should continue to offer support."

China’s trade surplus with the US rose 13% to 1.87rtn yuan ($291bn) in 2017, customs spokesman Huang Songping said at a briefing on Friday. Bloomberg’s dollar index was down 0.35%, taking its loss since last Tuesday to 1.7%.

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 CFETS RMB Index rose 0.16% 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.