In this Jan 7, 2016 file photo, a resident shows China's RMB and US dollar banknotes in Qionghai, south China's Hainan province. (MENG ZHONGDE / XINHUA)
BEIJING — The Chinese yuan has strengthened against the US dollar since the beginning of 2023 as China's optimized COVID response helped sharpen investors' favor of yuan assets.
The central parity rate of the Chinese currency renminbi, or the yuan, strengthened 654 pips to 6.7611 against the US dollar Tuesday, on top of the 647-pip appreciation on the previous day, according to the China Foreign Exchange Trade System.
Foreign capital inflow increased as global investors bet on China's growth, backing the yuan further
Industry data showed the yuan rose over 6 percent against the greenback since last November.
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"Faster-than-expected economic recovery is a key driver behind the yuan's recent strengths, for it made yuan-denominated assets more investment-worthy," said Li Liuyang, a forex analyst with investment bank CICC.
Foreign capital inflow increased as global investors bet on China's growth, backing the yuan further, noted analysts. Industry data showed that net inflow into the A-shares within the first week of trading this year topped 20 billion yuan (about $3 billion).
China's efforts to better coordinate anti-virus efforts and economic development heartened investors. In its latest move, the country downgraded its management of COVID-19 from Jan 8 to treat it as a Class B infectious disease rather than a more severe Class A one, enabling quarantine-free global travel and easing other curbs.
Across-the-board signs of heightened activities followed. More than 50 million people traveled within China during the New Year holiday. On Jan 1, 10,640 cinemas opened for business nationwide, a new high in nearly ten months. The number of passenger trips during this year's Spring Festival travel rush is expected to surge 99.5 percent year on year to nearly 2.1 billion.
Also, exporters tend to make forex settlements as they prepare for the Spring Festival holiday, which analysts say is another cause for the yuan's recent trend.
Analysts expect the yuan exchange rate to see two-way fluctuations for the better part of 2023, as foreseeable factors could sway the yuan in both directions.
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The rate could be affected by domestic policies, the strength of the greenback, or the status of cross-border settlements, Li said. Weakening external demand could make foreign trade surplus a lesser mainstay of the yuan, showed a Peking University report.
Others believe in the yuan's long-term strength. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told Xinhua in an interview that the rebounding yuan since the end of last year showed global confidence in China's economic expansion, and it will gradually strengthen as an overall trend.
"A strong economy renders a strong currency," said Guan Tao, an economist with BOC International.