Yuan heading for best monthly gain since 1994

The yuan broke thought the psychological 6.3 level against the dollar for the first time on Wednesday, and is heading for its best monthly gain since 1994, as its appreciation persisted, fuelling expectations it will revisit pre-August 2015 devaluation levels.

Onshore yuan rose 0.52 per cent to 6.2911 per dollar, recovering most of its losses since being devalued on August 11, 2015, when the People’s Bank of China depreciated the currency by nearly 5 per cent in three days, in an effort to end to the one-way appreciation of the mainland currency.

It is now on course to clock a gain of 3.328 per cent for January, marking the biggest monthly gain since 1994, when China completed a major overhaul to its currency regime by unifying its dual exchange rates into a single one.

On the offshore markets, the yuan is under buying pressure, against the dollar particularly, led by banks and leveraged accounts in Asia, as financial conditions get easier in the US while China continues to drum up a hawkish stance verbally on an excessively indebted financial system.

“China is one of the countries in the region showing a bias towards monetary policy tightening. So when the dollar slumps, the yuan finds it much easier to appreciate,” said Jimmy Zhu, chief strategist at Fullerton Markets.

The trade-weighted CFETS RMB index, which measures the yuan against a basket of currencies of China’s major trading partners, rose to a 19-month high of 95.70, showing the currency’s strengthening has become more broad-based.