Chinese Economy's Improving Fundamentals Support Yuan's Rise, Analysts Say
She Qingqi
/SOURCE : Yicai
Chinese Economy's Improving Fundamentals Support Yuan's Rise, Analysts Say

(Yicai Global) Dec. 22 -- The Chinese economy's improving fundamentals are providing support for the rise of the yuan, analysts said.

The central parity of the yuan against the dollar reached 6.5795 yesterday, marking an increase of 271 basis points from the previous day and hitting a post-Sept. 20 high. The Chinese currency also appreciated against the euro, pound and yen yesterday.

In China's new "quality-focused" era, the country will have less aggressive gross domestic product targets and the new economy may flourish next year, market analysts said. The Chinese economy is maintaining steady momentum and a positive structure that provides essential support for the stabilization of yuan exchange rates, they said.

After reviewing the Central Economic Work Conference, investors have become more optimistic about the long-term development of China's economy, a foreign banker told Yicai Global.

The decline of the US dollar index also supports the yuan's rise. The dollar index dropped over several trading days as US President Donald Trump's tax reform plan advanced.

Tax reform developments and investors' reluctance to conduct transactions due to their wishes to keep profits around Christmas time are the main reasons for the decline of the US dollar index, said Liu Jian, a specialist at the Bank of Communications' financial research center.

Trump's tax reform should shore up in the dollar in the long-term and signs of the dollar entering a depreciation cycle have not emerged, Liu said.

As the US Federal Reserve may raise interest rates three times next year and accelerate balance sheet shrinkage, the yuan to dollar exchange rate may face a bit of depreciation pressure in 2018, Liu opined.

China's central bank raised both reverse repo and medium-term lending facility operating interest rates by 5 basis points after the Federal Reserve's hiked interest rates 25 basis points earlier this month.

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Keywords: RMB , USD